The number of companies falling victim to fraud has increased in the past year, according to the 2013 Kroll Global Fraud Report. Overall, 70 per cent of companies were affected by fraud in the past 12 months, up from 61 per cent the previous year, and there was an increase in every category of fraud covered by the study.
The report sees the globalisation of business as increasing exposure to fraud, as businesses seek expansion into riskier overseas markets and outsource more. The sharpest increase was in vendor, supplier or procurement fraud, suffered by one in five businesses (19 per cent), up from 12 per cent last year. Indeed, of those companies that fell victim to fraud in the past 12 months, one third (30 per cent) experienced fraud perpetrated by vendors or suppliers while 11 per cent suffered at the hands of joint venture partners.
The proportion of companies affected by corruption and bribery increased from 11 per cent to 14 per cent. Corruption is by far the most important element dissuading companies from doing business in certain markets, such as Africa, Latin America and India. Almost half (46 per cent) of companies have refrained from expanding into a foreign market, citing corruption as the main reason. In fact entry to new, riskier markets has increased the vulnerability of almost one in three companies (30 per cent) to fraud.
The report reveals that overall, 72 per cent of companies have been hit by fraud led by at least one insider, up from 67 per cent last year. Of those victims of fraud, 32 per cent had suffered at least one crime where the main perpetrator was in senior or middle management, 42 per cent where he or she was a junior employee and 23 per cent where an agent or intermediary was the main culprit.
However, the study also shows that most fraud is discovered internally. In cases where the fraud was uncovered, over half (52 per cent) were discovered by management and an internal audit played a role in 51 per cent of cases, compared to just one in 10 incidents (10 per cent) where an external audit contributed to its discovery.
Senior employee alertness is key to combating fraud. However, when senior employees are themselves the perpetrators whistle-blowers become a more important way of exposing wrongdoing. A whistle-blower was involved in one in three incidents (32 per cent) of all cases where fraud was uncovered and in 41 per cent of cases that involved senior or middle management. Despite this, just 52 per cent of companies reported that they have invested in staff training around fraud and the creation of whistle-blower hotlines.
Tom Hartley, CEO of Kroll, commented: “It should come as no surprise to anyone whose job it is to combat fraud that the global incidence of fraud is rising. But the measure of a good company is not whether or not you’ve suffered a fraud, it’s how you prepare for it, how you deal with it and how you move on afterwards. Many of the clients we’ve helped deal with fraud over the last 12 months have, on discovering fraud, resolved the issue and moved forward with a better risk mitigation strategy including vendor screening, whistle blower programmes and employee training. Most would say that they are now in a better position because of the fraud and the way they dealt with it. So it’s not just about avoiding fraud, which is almost inevitable, it’s also about how you respond.“
Information theft
The study suggests that more companies are highly vulnerable to information theft (21 per cent) than any other category of fraud and three quarters of businesses (75 per cent) are at least moderately vulnerable to it. Information theft remains the second most common type of fraud, affecting more than one in five businesses over the past year (22 per cent) and executives say that the complexity of their IT infrastructure is the biggest factor increasing their company’s exposure to fraud (cited by 37 per cent of respondents).
This increasing exposure to fraud due to IT complexity is being exploited more by outsiders. As a share of all incidents of information theft, attacks by external hackers have almost doubled from 18 per cent to 35 per cent, and 17 per cent of information theft victims suffered as a result of a hacker attack on a vendor or supplier, up from 5 per cent last year.
However, like most frauds, information theft is typically an inside job. Of those who have suffered in the past year where the perpetrator is known, 39 per cent say an employee was to blame.
Tom Hartley added: “Cybercrime is a growing threat for businesses but many businesses are under-prepared for it. A third of them say they don’t currently invest in IT security and while companies that are planning to increase investment are focusing on technology, they are neglecting elements such as staff screening and due diligence on partners, clients and vendors. These processes are key to mitigating the insider threat, which often can’t be detected by anti-fraud technology or physical security.”
The seventh Kroll Annual Global Fraud Report includes industry analysis across a range of fraud categories and regions. To obtain a copy – visit fraud.kroll.com
