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“You sir, are a fraud!

12 March 2012

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation

© 2012 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

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2 . is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. a UK limited liability partnership. All rights reserved.Agenda ■ How much does fraud cost? ■ Current and emerging fraud types ■ Profile of a fraudster ■ What can you do to manage fraud? © 2012 KPMG LLP. a Swiss entity.

is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. a UK limited liability partnership. 3 . a Swiss entity. All rights reserved.Quiz – famous alleged fraudsters © 2012 KPMG LLP.

000 £1.500 £3.250 £2. All rights reserved.000 £750 £500 £250 £0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 360 300 240 180 120 60 0 Value £m No.750 £3. of Cases © 2012 KPMG LLP.750 £1.UK Fraud Annual Comparison £3.250 £1.500 £2.000 £2.750 £2. 4 4 . is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. a Swiss entity.500 £1.250 £3. a UK limited liability partnership.

750 £3.250 £1. a UK limited liability partnership.000 £2.000 £750 £500 £250 £0 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 300 240 1993 . a Swiss entity. 5 5 .500 £3.250 £2.UK Fraud Annual Comparison – Key events 2011 – 360 UBS £3. All rights reserved. of Cases © 2012 KPMG LLP. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.500 £2.750 £2.250 £3.750 £1.BCCI 2006 – IMPERIAL 1998 – PETER YOUNG 2005 – RBG RESOURCES 180 1992 MAXWELL 120 60 0 2010 2011 Value £m No.000 £1.500 £1.

0 0. a Swiss entity. All rights reserved. 6 . a UK limited liability partnership.5 1.How much does fraud cost? Rising Cost of Insurance Fraud Insurance Fraud 2006-2011 2.5 0 2006 Source: Association of British Insurers and National Fraud Authority 2008 Year 2010 2011 (estimated) © 2012 KPMG LLP. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.5 Insurance Fraud (£ billion) 2.0 1.

is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.7 million do not think making a fraudulent insurance claim is wrong ■ Impacts of Cuts ■ Police resources are set to decline over the next few years and in particular resources dedicated to financial crime An erosion of middle management This necessitates a much greater need for the industry to be vigilant towards fraud going forward Recession Motivators ■ ■ ■ Desperation and ‘Lifestyle’ fraud Financial difficulties is naturally a key motivator ■ ■ Excessive pressure from within your organisation Source: Association on British Insurers 2009 Research Brief.How much does fraud cost? Impact of the Recession on the Insurance Industry Key Indicators ■ ■ ■ An increase in very amateurish claims An increase in the proportion of ‘suspect’ claims An increase in the proportion of claims referred to investigation that are proven to be fraudulent ■ An increase in calls to the Insurance Fraud Bureau’s (IFB) ‘Cheatline’ ■ An increase in ‘walk-aways’ Changing Behaviour ■ ■ The economic climate could be creating a more lax attitude to fraud RSA research in March 2008 showed 3.6 million Brits think it’s wrong to lie on an insurance claim In January 2009 they found that 4. a UK limited liability partnership. 2009) © 2012 KPMG LLP. 7 . All rights reserved. a Swiss entity. RSA Research (2008.

8 . All rights reserved. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.Current and emerging fraud types Common types of Insurance Fraud ■ Non-disclosure fraud ■ False claims ■ Claims overstatement ■ Duplicate claims ■ ‘Ghost’ brokers ■ Supply-chain fraud ■ Internal fraud © 2012 KPMG LLP. a UK limited liability partnership. a Swiss entity.

resulting in various claims. a Swiss entity. lawyers and vets – who are all benefitting from advances in technology to widen their fraud operations ■ One typical example is a Staged Accident. a UK limited liability partnership.Profile of a fraudster External fraud: Example ■ Organised Crime Groups (OCGs) are collaborating with a growing number of professional enablers – including doctors. where two or more individuals deliberately crash their vehicles into each other. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. (Cash for Crash) Garage and Engineer Overcharge for vehicle parts Recovering Company Supplies damaged car for staged accident/provides invoice for recovered car Accident Management Company Helps stage accident Staged Car Accident Salvage Company Underpays insurer for scrap metal from cash Solicitor Represents ‘victim’ False Victim Medical Treatment Service Provides treatment for nonexistent ailments Credit Hire Company Claims to provide “victim” with substitute car Collusive Doctor Supports alleged injury © 2012 KPMG LLP. All rights reserved. 9 .

10 . All rights reserved. a UK limited liability partnership. a Swiss entity.Profile of a fraudster Internal ■ Male ■ 36 to 45 years old ■ Holds a management position within the finance function or in a finance-related role ■ Has been working for the same company for more than ten years ■ Commits fraud against his own employer ■ Operates in collaboration with other offenders Source: KPMG Report ‘Who is a Fraudster’ June 2011 © 2012 KPMG LLP. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.

11 . a UK limited liability partnership. a Swiss entity. All rights reserved.Profile of a fraudster The Fraud Triangle: Internal fraud Opportunity © 2012 KPMG LLP. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.

Profile of a fraudster Fraud triangle: Pressure Meet budgets/ expectations Debts Addiction – drink. All rights reserved. a Swiss entity. 12 . a UK limited liability partnership. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. drugs ‘Results at any cost’ Coercion or blackmail Family pressures ‘I need the Money’ Illness © 2012 KPMG LLP.

All rights reserved. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. a UK limited liability partnership. 13 .Profile of a fraudster Fraud triangle: Opportunity Poor controls/lack of monitoring Fraud can be hidden in complex transactions Exploiting errors Abuse of authority Lack of segregation of duties Lack of effective oversight/ resource © 2012 KPMG LLP. a Swiss entity.

14 . All rights reserved. a Swiss entity. a UK limited liability partnership. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.Profile of a fraudster Fraud triangle: Rationalisation ‘They do not pay me enough!’ ‘Rules are made to be broken’ ‘Everyone else does it’ ‘Who cares?’ ‘I’m the boss!’ ‘It’s only a small amount’ ‘It’s a victimless crime’ ‘They can afford it’ ‘I’ll never get caught!’ ‘It’s a cost of doing business’ © 2012 KPMG LLP.

Profile of a fraudster Warning signs – Accounts manipulation / Fraudulent Financial Reporting Lack of trust / poor auditor relationships Dominance / lifestyle issues Undue secrecy Illegal unethical practices Significant director share sales High analyst or other pressures Declining industry / earnings High hope value Aggressive forecasts Highly-leveraged rewards Aggressive accounting policies Unique products – unique risks Cash / funding gap Results exceed market trend High management turnover Profit warnings / credit warnings Complex corporate structures Related party arrangements Multiple banking arrangements Remote operations © 2012 KPMG LLP. All rights reserved. a Swiss entity. 15 . a UK limited liability partnership. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.

a Swiss entity. prone to mistakes. a UK limited liability partnership. denies responsibility Overly secret Egotistic Bullies or intimidates colleagues Ability and performance not in tune with CV Has favourites or is surrounded by “yes men / women Personal pay and reward could be manipulated Cannot produce notes / records of business meetings Vendors and suppliers will not speak to anyone but this person Cuts corners or bends the rules! © 2012 KPMG LLP. pressurised Unreliable. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. poor performance Shifts blame for errors. All rights reserved. 16 .Profile of a fraudster Warning signs – Employee behaviour Lifestyle / Income mismatch Refuses or does not seek promotion Overextended personal finances Resists or refuses new positions Addictive behaviour Relationship “issues” Rarely takes holidays Poor motivation or unhappy Stressed.

6% 10.3% 7.3% 8.6% 4.1% 18.2% 22. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. suspiciousness or defensiveness Addiction problem Refusal to take vacations Past employment-related problems Complained about inadequate pay Excessive pressure from within organization Past legal problems Instability in life circumstances Excessive family/peer pressure for success Complained about lack of authority 0.0% 20.6% 36. All rights reserved.6% 17.8% 19.6% 22.0% 17 .0% Source: Association of Certified Fraud Examiners (ACFE) ‘Report to the Nations’ 2010 © 2012 KPMG LLP.9% 5. 38.1% 43.0% 30.5% 6.6% 3.3% 7. unwillingness to share duties Unusually close association with vendor/customer Wheeler-dealer attitude Divorce/family problems Behavioral red flag Irritability.0% 50. a Swiss entity.6% 11.0% 40.2% Percent of cases 2010 2008 9.9% 7.7% 15.2% 20.3% 10.1% 13.5% 6.9% 7.0% 6.1% 14.9% 13. a UK limited liability partnership.Profile of a fraudster Employee-Related Red Flags: 2010 and 2008 Percentage of red flags displayed by perpetrators of fraud according to according to members of the Association of Certified Fraud Examiners (ACFE) Living beyond means Financial difficulties Control issues.7% 5.3% 17.2% 4.1% 4.4% 34.

g. a Swiss entity. names of individuals. 18 . suspect bank accounts etc.What can you do to manage fraud? How do you prevent and detect fraud? Control Preventative / Detective Effective systems and controls Audit and Assurance Segregation of duty Data analytics Preventative Detective Preventative Detective ■ Non disclosure of details – Motor and personal details are put through the CUE system to check previous claims history ■ Audits of underwriting/claims function ■ Cheques are not returned to the claims handler ■ Claims payments just below self-authorisation limit ■ Payments made close to the expiry of a cover Training Oversight and Governance Ongoing monitoring Preventative Preventative and Detective Detective ■ Regular training of fraud coordinators and front office staff ■ Whistleblowing hotline ■ Adequate reporting process in place ■ Claims which are in a re-opened state at a particular point in time ■ Claims fraud software Client onboarding Information and intelligence sharing Preventative Preventative ■ Details captured at application stage to determine whether multiple attempts have been made to lower premium ■ Sharing of information to wider industry e. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. All rights reserved. will assist in preventing further frauds and wider criminality Example © 2012 KPMG LLP. a UK limited liability partnership.

0% 20. 19 .1% 5.0% 25. All rights reserved.3% 15.0% 40.0% 10.8% 5.2% Source: Association of Certified Fraud Examiners (ACFE) ‘Report to the Nations’ 2010 © 2012 KPMG LLP.6% 1. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.4% 13.0% 15.0% 35.0% 6.0% 45.6% 8.8% 1.9% Percent of cases 40.What can you do to manage fraud? Management’s role in detecting fraud Occupational frauds are much more likely to be detected by whistleblowing than by any other means Whistleblowing Management review Internal audit By accident Detection Method Account reconciliation Document examination External audit Surveillance/monitoring Notified by police Confession IT controls 0. a UK limited liability partnership.0% 2.2% 4.0% 30. a Swiss entity.0% 0.

a UK limited liability partnership. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. All rights reserved. 20 . a Swiss entity.Future predictions © 2012 KPMG LLP.

a Swiss entity. is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative. 21 . All rights reserved. a UK limited liability partnership.Questions? © 2012 KPMG LLP.

uk Tel: +44 (0) 20 7694 2915 .co.Hicks@kpmg.Thank you DAVID HICKS Partner. Risk Consulting – Financial Services Email: David.

is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative.© 2012 KPMG LLP. The KPMG name. logo and ‘cutting through complexity’ are registered trademarks or trademarks of KPMG International. a UK limited liability partnership. All rights reserved. . a Swiss entity.