Recent research by KPMG discovered that the typical white collar fraud is carried out by senior male finance staff, and that it takes longer to detect.

KPMG based its findings on 348 real fraud investigations, across 69 countries, conducted by its member firms.

Most likely to participate in fraud are men in the 36 to 45 age group holding senior management roles in finance. This group accounted for 41% of cases, whilst the number of frauds committed by members of the board has increased to 18% from 11% in 2007.

90% of frauds are targeted against the perpetrator’s employer and 33% of the fraudsters will have been at the company for longer than 10 years. 61% work in collusion with another fraudster, almost double the 32% of collaborators in 2007.

The main motive for fraud is personal gain, followed by pressures to meet budget and profit targets. The survey also noted that 74% of fraud cases exploited weak internal controls.

The head of KPMG’s investigations network in Europe, Middle East and Africa, Richard Powell, said that a lot of the frauds he has investigated in the last few years have been detected via whistle blowing reports. Very few are discovered by management or auditors.

In 2007, it took an average 2.9 years to detect a fraud, now it takes 3.4 years. Companies also fail to act when they see warning signs, the report said. In 2011, 56% of cases were preceded by a red flag, compared to 45% in 2007. Only 6% of these red flag cases are acted upon immediately, compared to almost one in four of the 2007 cases.

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Accountants will know that dogs generally bark at the least sign of danger but now Lord Lawson is suggesting that accountants should bark also! He has said that auditors were amongst the dogs that didn’t bark throughout the recent banking crisis.

A House of Lords enquiry, which has been looking into the audit profession, has found that accounting rules had a significant role to play in the crisis. Tim Bush, who is a member of the ASB Urgent Issues Task Force, pointed out that international accounting standards have forced auditors to stop being prudent when they carry out audits.

Bush said that accounting rules on contingent liabilities, impairment and securitisation were key factors in the collapse of the UK banks. He also suggested that we should reinstate UK GAAP.

Meanwhile, the Accountancy and Actuarial Discipline Board appears to have more on its plate than it can handle. The watchdog for the audit profession currently has 17 active cases to work through.

At the beginning of the week the AADB announced a new investigation into KPMG’s audit of BAE systems. The board has launched some high profile investigations since the crisis began including PwC’s JP Morgan Securities audit and an audit of Lehman Brothers by Ernst and Young.

The AADB team only consists of 5 members, two forensic accountants and three lawyers, and the heavy workload has meant they have to outsource a large proportion of the work, which slows down investigations. It is expected that further cases will be announced in the coming months.

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The Audit Commission is to be scrapped, Eric Pickles, the communities minister, announced last Friday.

The commission employs about 2,000 people to monitor the performance and accounts of public sector bodies. The government claims that shutting it down will save around £50m a year.

This move is likely to benefit the private sector as councils and other public sector bodies will be able to tap into the open market and appoint their own external auditors. By outsourcing audit expertise, the government hopes to cut back on the centrally imposed bureaucracy and costly auditing, thus saving money for council tax payers.

The National Audit Office is to set up a new auditing framework to ensure public sector bodies are still subjected to robust auditing.

Pickles said that the Audit Commission is no longer a watchdog looking after the interests of the taxpayer; rather it has become a creature of Whitehall. This new plan goes together with proposals to create an army of local people who will hold local bodies to account when it comes to spending tax and delivering value for money services.

The Audit Commission, probably understandably, is less than optimistic that this new approach will work. Michael O’Higgins, the Commission’s chairman said the department had more than fulfilled its aims since it was set up by Michael Heseltine and the Tory government in 1983.

The ACCA believes the move will prove costly and lead to inconsistencies in local government reporting. The head of public sector at the ACCA, Gillian Fawcett, pointed out that although a lot of the Audit Commission’s work is currently contracted out; the commission ensures that reporting is consistent.

Whilst this move will undoubtedly benefit some private sector accountants and contractor accountants, the general feeling on the street is that the work will go to the larger accounting firms rather than smaller local businesses.

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Contractor accountants may be interested in the warning from the CEO of BDO Global, Jeremy Newman. He has cautioned that auditors may be cutting corners because of increased competition and cost pressures.

In his blog, Newman pointed out that extreme pressure to reduce costs could encourage auditors to cut corners and less stringent audits have the potential to lead to more fraud.

He says that whilst there has been a drop in demand for audit services, this should be offset by changing accounting standards, additional regulation and high quality audits.

Recruitment levels have fallen by more than the demand for audit services and the economic law of supply and demand should have led to a price increase and yet that has not happened and costs are decreasing.

The potential for an increase in company fraud should cause concern as research, also from BDO, reveals that the value of fraud in the first half of 2010 has risen to more than £1bn.

The head of BDO’s fraud services, Simon Bevan, said that during the recession there was a rise in the number of managers setting up companies within companies and diverting lucrative contracts to third parties. Insider dealing also rose.

Internal management originates 16% of reported fraud whilst another 17% is instigated by suppliers and third party customers. The finance and insurance sectors are the worst offenders with almost 50% of all fraud cases being committed by those 2 industries.

In the past year the average fraud has risen by almost £1m to £6m. Bevan said that fraud is now as prevalent as it has ever been and companies need to be even more vigilant during recessionary times.

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The chief financial regulator, the FSA, wants new powers to censure, fine or even disqualify accountancy and audit firms.

A new report criticises auditors over their failure to scrutinise management adequately in the run up to the financial crisis. The report accuses auditors of showing a disturbing lack of scepticism.

The FSA says it now needs more powers of enforcement so it can deal with individual cases of regulatory concern.

Currently, officials from the FSA only meet auditors once a year but they now want to meet then several times to discuss any potential issues before year ends. The Association also wants to have direct access to listed companies’ audit committees so that they can discuss audit issues.

Michael Izza, the chief executive of ICAEW, said any reform of the audit profession needs to be based on evidence. He defended auditors, saying they had not failed and he flatly rejected that there had been a fundamental failure in auditing processes.

He stressed that last year’s Treasury select committee had determined that there was little evidence to show that auditors had failed in their duties towards limited company contractors.

Izza did agree that there were lessons to be learnt from the crisis and the accountancy profession was asking itself how to evolve the current audit model to meet the ever changing needs of the market. However, changes should focus on the actual situation, he said.

The head of audit at PwC UK, Richard Sexton, said that the FSA’s perception of an auditor’s responsibilities appears to differ from that of the auditing profession. Auditor’s view their role as one of making sure management has the right evidence to back up its assumptions, not to present them with alternative views.

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