Fraud strikes four out of five companies worldwide

If you think your company has no reason to worry about fraud and corruption, think again. A recent survey conducted for the risk consulting company Kroll found that four out of five companies have experienced some sort of fraud in the past three years. In every industry sector, companies have lost many millions of dollars to fraud, according to Kroll's latest Global Fraud Report. The report draws on results of a survey by the Economist Intelligence Unit of 900 senior executives worldwide.

Our interconnected world has left more companies than ever vulnerable to all types of fraud. "As our society has become more reliant on information technology, increased globalization, and greater interconnectedness, certain exposures have expanded right along with them," said company founder Jules Kroll when the report was released. "Dramatically new exposures such as [identification] theft, various [information technology] crimes, and false reporting by asset managers were rarely seen 25 years ago."

One-fifth of all companies have been victims of information theft, selfdealing, financial mismanagement, internal financial fraud, procurement fraud, or corruption and bribery. Those problems have a huge impact on the bottom line: The average cost of such losses to large companies—defined as those enterprises with annual revenues of more than $5 billion—was more than $20 million. Moreover, one in 10 large companies reported fraud losses exceeding $100 million. More than one-fifth of all companies in sectors such as healthcare, pharmaceuticals, and biotechnology had lost more than $1 million.

The retail, wholesale, and distribution industries have not escaped this troubling trend. About 20 percent of respondents in that sector said they considered their companies to be highly vulnerable to physical theft and procurement fraud.

In one respect, those industries are comparatively welloff; they suffered only 29 percent of the average loss for all companies surveyed. Look at it from another angle, though, and they appear to be less successful in preventing losses: 31 percent of respondents in that sector have experienced procurement fraud. And 44 percent said they have been victims of physical theft; that's considerably higher than the 34 percent of all companies that reported thefts of physical assets.

For all companies surveyed, high staff turnover—cited by 32 percent of respondents—was the most frequent cause of exposure to fraud. Close behind were information technology complexity (31 percent), entry into new markets (28 percent), and increased collaboration between unrelated companies (26 percent).

Finally, the study found that the extent of corruption and bribery varies widely from one region of the world to another. Thirty-nine percent of those surveyed had encountered bribery and corruption in their business dealings in the Middle East and Africa. Twenty-nine percent reported such problems in Eastern Europe while only 14 percent said these issues occurred in Western Europe.

[Source: Kroll Global Fraud Report, www.kroll.com/fraud]