Lax management leaves door open to fraud

Sep 15 2008 by Nic Paton Print This Article

Weak controls and complacent managers, combined with the credit crunch and tougher economic climate, have led to a sharp increase in the amount of fraud and corporate crime suffered by companies around the globe.

The average company loss to fraud had risen by a fifth and now stood at $8.2m over the past three years, according to a global fraud report by international security firm Kroll. This compared with $7.6m reported in a similar poll last year.

Equally worrying, the poll of 890 senior executives found that four out of five had suffered from corporate fraud in the past three years, a rise of 80 per cent.

Among larger firms the situation was even worse, with nine out of 10 admitting they had lost goods or money to fraud.

The fastest growing types of fraud were information theft, cited by more than a quarter from a fifth a year ago, and regulatory and compliance breaches, which saw a similar rise.

The construction and natural resources sectors suffered the most incidents of fraud, in part because of the continuing rise in oil prices and an industry shift to higher-risk areas, argued Kroll.

Healthcare, pharmaceuticals and biotechnology also saw an increase in problems with corruption and theft of stocks or assets, while travel, leisure and transportation reported increases in regulatory and compliance breaches and information theft or loss, it added.

Blake Coppotelli, senior managing director in Kroll's business intelligence and investigation division, pointed the finger clearly at tougher market and economic conditions, as well as lax managers.

"The findings show that fraud is not only widespread, but also growing and we expect to see this increase further as conditions become tougher for business and the full impact of the credit crunch unfolds," he said.

"When you look into the causes of fraud, companies that cited high staff turnover or weak internal controls suffered much higher levels of fraud in almost every case increasing their exposure by one-and-a-half times," he added.

"Companies need to look carefully at how they can address these issues to reduce their risk to fraud and improve their business operations," he continued.

Only two of the ten categories of fraud tracked in the survey money laundering and procurement fraud declined annually, albeit by a mere one per cent each, Kroll added.

Among other findings, was the conclusions that more developed economies (North America and Western Europe) saw less widespread fraud activity, while economically less developed regions (Middle East and Africa) experienced higher levels of fraud.

In eight out of ten fraud categories, companies in the Middle East and Africa had the highest or second highest incidence of activity and North America the lowest.

The only marked exception was intellectual property theft, with less developed regions seeing the fewest incidents and North America the most, Kroll said.

Back in May, a report by Ernst & Young argued that, while anti-corruption efforts may have got stronger in recent years, almost a quarter of senior executives admitted their organisation had been approached to pay a bribe in order to retain or win business in the past two years.

And in February, a survey by employee expenses company GlobalExpense calculated that fraudulent expense claims in the UK alone accounted for around 350m a year.

Employees around the world were pocketing almost 6bn a year in false expense claims, it argued, because managers were too happy to sign almost anything shoved under their noses.


Older Comments

Fraud crimes will get worse until banks make signature and PIN systems reliable as proposed on website

Why would anyone get tempted to do identity fraud when they know that their signature personalised with their ID sticker will expose their identity? Current signature system does not even expose person's gender and so boosts identity fraud. Only this system will deter use of fake documents.

Why would anyone get tempted to use stolen or skimmed cards when they know that they will not be able to activate the transaction without new security code which will change to a new value after every transaction?

This system will also eliminate the need for us to protect our personal an card details since fraudsters will not be tempted to misuse these stolen details.

Organisations would make their customers personalise signatures by letting them use mobile phone size device which will capture image and activate printer to print their ID sticker virtually instantly.

Proposed system will deter virtually all fraud crimes including those Chip and PIN, data protection and even biometric ID cards will not deter.

This KEY and PIN system could be treated like international ID card since it will personalise signature and PIN to the right individual in any country in the world.

To protect the public and entire business industry from becoming victims of fraud government and banks should act now and exploit proposed system before it is too late to stop a fraud crunch which will be far worse than credit crunch.

Roger London