2006 WEBCAST SERIES

A Look at Fraud Risk

Surveys estimate that fraud exists in most organizations, costing billions of dollars in lost value annually. And there are analysts who believe that some form of fraud probably exists in all organizations, making the total cost incalculable. However, companies do have access to methods that can mitigate the costs associated with fraud and train their employees on what to do if they suspect something – or someone – is amiss.

Fraud may be commonplace in organizations, but the cases that draw the most attention are those that have made headlines in recent years. In reality, fraud relies on intentional deception that drains value from an organization. It is a broad legal concept and only a court of law can determine if fraud has occurred.

The Fraud Triangle: Opportunity, Incentive/Pressure, Rationalization

There are many different types of fraud and misconduct: fraudulent financial reporting, misappropriation of assets, override of controls, external fraud and collusive behavior, violations of code of conduct, and organizational corruption. Despite the varieties, most fraud stems from the existence of three common elements: opportunity, incentives and/or pressures to commit fraud, and the rationalization that no one will be hurt.

How are Companies Responding to Fraud?

In response to Sarbanes-Oxley, other changes in the regulatory environment and recent events in the media, organizations are revisiting existing internal control policies and procedures that relate to fraud. Many companies have acted in a reactive manner, such as focusing on meeting deadlines and meeting minimum requirements. However, leading-edge companies are assessing the overall quality of fraud risk management strategy and designing programs geared toward prevention, detection, and response to fraud.

© 2008 KPMG LLP, a U.S. limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.