Fraud on the rise in GCC, says KPMG

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Corporate fraud is largely carried out by middle-aged men acting alone. And what may well raise eyebrows is nearly 90 per cent of these white-collar crimes are committed by a company’s own staff – of which 60 per cent are senior management and board members.


The profile and figures have been compiled by international audit and advisory firm KPMG, which has just compiled its in yet-to-be-published 2007 GCC Fraud Survey Report.

The survey of more than 300 organisations, which was shared exclusively with Emirates Business, found fraud had more than doubled in GCC countries over the past three years – especially in the financial and real estate sectors. And 40 per cent of respondents said fraud had now become a major hurdle in doing business in the region.

Respondents said total losses from fraud at their organisations grew from $22.9 million (Dh84m) in 2004 to more than $45m last year.

“The survey is a GCC-wide survey involving government organisations, private groups and individuals to identify the rate of fraud in the region. Though, we are in the final stages of compiling the data, preliminary indicators point out a two or three fold increase in fraud in the GCC,” said Colin Lobo, a partner at KPMG’s Forensic Department.

The report will be officially published by the first week of March, however, Lobo confirmed that the initial indicators of the 2007 survey show an upward trend for illegal financial activity in the region when compared to a similar survey conducted by KPMG in 2004.

“Around 40 per cent of respondents said they believe that fraud is a major problem in doing business in the region. And the level of corruption and fraud are closely intertwined with financial crimes,” said Lobo.

“One of the findings that is certain from the survey is that incidence of fraud has increased in the financial and real estate sectors. There have been a spate of frauds in the two sectors, and it can be well tied to the economic boom they have witnessed.”

Meanwhile, the healthcare and pharmaceutical sectors were correlated with the lowest incidences of fraud. 

Lobo said that identity theft is becoming more common in the Gulf. “This again has much to do with the economic scenario where even the market place is witnessing an increase in pilfering.”

All growing economies see the good as well as bad so the UAE is also attracting fraudsters who consider the booming economies as targets, he said. “It is not different from any other part of the world. High economic growth probably makes markets vulnerable to conmen who flock to the bait.”

Commenting on the most common types of irregularities reported in the region, Lobo said misappropriation of funds is most likely to top the list for 2007, as it did in KPMG’s previous survey.

In 2004 results, misappropriation of funds was reported as the largest single fraud incident type with 23.7 per cent of respondents saying it was present in their organisations. It was followed by false invoicing at 11.8 per cent, kickbacks, bribery or procurement fraud at 7.9 per cent and funds obtained through misrepresentation, which stood at 6.6 per cent.

Another partner at KPMG, Robert Chandler, said one positive sign in the 2007 survey was the increased willingness of corporations to initiate legal action against people who commit fraud. “This shows that government initiatives towards tackling the problem are considered an effective remedy in stemming fraudulent practices,” said Chandler.

The 2004 survey results indicated that 20.5 per cent of incidents were dealt with by internal investigation while only 4.7 per cent cases were submitted to authorities.

On the relevance of the fraud survey, Chandler said when the economy is booming people need to be more wary of fraud.

“People need to be aware that if something is too good to be true, then invariably it is. The phenomenon of low investment and high returns is disappearing.”


 
Behind bars

Conrad Black
Flamboyant in lifestyle and ruthless in business, the Brit built a towering newspaper empire, only to be felled by a fraud conviction that landed him with a six-and-a-half year jail sentence last month.
Black, 63, received the sentence for raiding his firm’s coffers.

 
Takafumi Horie

The Japanese entrepreneur’s portal was involved in a wide range of businesses. He was arrested on accusations of securities fraud in 2006. He was granted bail and his trial began later that year. In March last year, he was sentenced to a two-and-a-half years.

 

Fact file

Profile of a fraudster according to April 2007 survey:

70%

of fraudsters are aged between 36 and 55


85%

of cons were men


68%

of the time fraudsters act alone


89%

are staff acting against their firms


60%

are members of senior management


36%

worked for the firm for at least five years before fraud


91%

of perpetrators did not stop at one fraudulent act


25%

of the identified conmen in the Middle East stole Dh5.3m


 
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