A senior employee known as an aggressive workaholic, but who seems stressed, yet rarely takes vacations, declines promotions, and zealously protects his business unit from outside scrutiny while personally handling choice vendors may be up to something devious.

Sound like Jerome Kerviel, the former trader at Societe Generale in Paris, whose covered up trades led to the French bank losing $6 billion? He never took time off, which likely would have unraveled his bets.

Not really. It’s the description of a fictional fraudster – but typical of individuals in finance organizations who take their firms for a ride. The rundown is part of a report, "Who is the typical fraudster?,", issued Tuesday by KPMG, the financial accounting and audit firm.

"Knowing the common traits of a fraudster can help employers be better prepared to prevent damaging incidents from happening in their organizations," said Philip D. Ostwalt, who leads its Forensic Services Investigations Network .

An analysis of 348 cases that KPMG investigated from 2008 to 2010 for clients in 69 countries identified the typical fraudster as:

  • A 36- to 45-year-old male in a senior management role in the finance unit or in a finance-related function;
  • An employee for more than 10 years who usually would work in collusion with another individual.

Here are fraud red flags:

  • A business unit thrives despite competitors struggling with declining sales and/or profits.
  • Excessive pressure exists on senior managers and employees to achieve unusually tough profit targets and business goals.
  • Complex or unusual payment methods and agreements occur between the business and certain suppliers/customers.
  • The business may have multiple banking arrangements rather than one clear provider–a possible attempt to reduce transparency over its finances.
  • The business consistently pushes the limits and boundaries regarding matters of financial judgment or accounting treatment.
  • There is excessive secrecy about a function, its operations and its financial results, and the unit is not forthcoming with answers or supporting information to internal inquiries.
  • Increased profitability fails to lead to increased cash flows.

Here are the typical fraudster's traits:

  • Volatility and being melodramatic, arrogant and confrontational, threatening or aggressive, when challenged.
  • Performance or skills of new employees in their unit do not reflect past experiences detailed on resumes.
  • Unreliability and prone to mistakes and poor performance, with a tendency to cut corners and/or bend the rules, but makes attempts to shift blame and responsibility for errors.
  • Unhappy, apparently stressed and under pressure, while bullying and intimidating colleagues.
  • Being surrounded by "favorites," or people who do not challenge the fraudster, and micromanaging some employees, while keeping others at arm's length.
  • Vendors/suppliers will only deal with this individual, who also may accept generous gestures that are excessive or contrary to corporate rules.
  • Persistent rumors or indications of personal bad habits, addictions or vices, possibly with a lifestyle that seems excessive for their income, or apparently personally over-extended in their finances.
  • Self-interested and concerned with their own agenda, and who has opportunities to manipulate personal pay and rewards.

Companies should consider whether their internal controls and other processes remain relevant as market conditions and internal growth goals change, said Ostwalt.
"Senior management must endorse and support a robust ethics and compliance policy that advocates doing the right thing, provide an easy way for employees to report an issue without fear of retaliation, and conduct appropriate due diligence such as vendor screening and background checks on new hires and those being promoted to material positions," Ostwalt said.

Here are are operational risk controls that securities firms can follow, that extend out of the Kerviel case.


Register or login for access to this item and much more

All On Wall Street content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access