82% of executives surveyed worldwide experienced a fraud incident in the past year
compared to 75% in 2015, according to the Kroll Annual Global Fraud and Risk Report
85% of executives reported at least one cyber incident and over two-thirds reported
security incidents current and former employees were the most common perpetrators.
Fraud, cyber, and security incidents are now the “new normal” for companies across the
world, according to the executives surveyed for the 2016/17 Kroll Annual Global Fraud and
Risk Report1. The proportion of executives that reported their companies fell victim to fraud
in the past year rose significantly to 82%, from 75% in 2015 and 70% in 2013, highlighting
the escalating threat to corporate reputation and regulatory compliance.
Cyber incidents were even more commonplace, with 85% of executives surveyed saying
their company has suffered a cyber incident over the past 12 months. Over two-thirds (68%)
reported the occurrence of at least one security incident over the course of the year.
The threat from within
Despite widespread concerns about external attacks, the findings reveal that the most
common perpetrators of fraud, cyber, and security incidents over the past 12 months were
current and former employees.
Six out of ten respondents (60%) who worked for companies that suffered from fraud
identified a combination of perpetrators that included current employees, former employees,
and third parties. Almost half (49%) said incidents involved all three groups. Junior staff were
cited as key perpetrators in two-fifths (39%) of fraud cases, followed by senior or middle
management (30%) and freelance or temporary employees (27%). Former employees were
also identified as responsible for 27% of incidents reported.
Overall, 44% of respondents reported that insiders were the primary perpetrators of a cyber
incident, with former employees the most frequent source of risk (20%), compared to 14%
citing freelance or temporary employees and 10% citing permanent employees.
Adding agents or intermediaries to this “insider” group as quasi-employees increases the
proportion of executives indicating insiders as the primary perpetrators to a majority, 57%.
Over half of respondents (56%) said insiders were the key perpetrators of security incidents,
with former employees again the most common of these (23%).
Tommy Helsby, Co-Chairman, Kroll Investigations & Disputes, commented: “This
year’s Kroll Global Fraud and Risk Report shows that it’s becoming an increasingly risky
world, with the largest ever proportion of companies reporting fraud and similarly high levels
of cyber and security breaches. The impact of such incidents is significant, with punitive
effects on company revenues, business continuity, corporate reputation, customer
satisfaction, and employee morale.”
“With fraud, cyber, and security incidents becoming the new normal for companies all over
the world, it’s clear that organizations need to have systemic processes in place to prevent,
detect, and respond to these risks if they are to avoid reputational and financial damage.”
Increasingly complex threats
The vast array of perpetrators and ever-evolving nature of incidents reflect an increasingly
complex risk management environment for businesses.
Every category of fraud has seen a marked increase between 2015 and 2016. The greatest
increases were in the areas of market collusion (15%) and misappropriation of company
funds (11%). Theft of physical assets remained the most prevalent kind of fraud suffered in
the past year (reported by 29% of respondents), followed by vendor, supplier, or
procurement fraud (26%).
Percentage of respondents’ companies affected by different types of fraud
Type of fraud
|
Percentage of companies in 2016, globally
|
Percentage of companies in 2015, globally
|
Theft of physical assets
|
29%
|
22%
|
Vendor, supplier, or procurement fraud
|
26%
|
17%
|
Information theft
|
24%
|
15%
|
Management conflict of interest
|
21%
|
12%
|
Regulatory or compliance breach
|
21%
|
12%
|
Internal financial fraud
|
20%
|
9%
|
Misappropriation of company funds
|
18%
|
7%
|
Market collusion
|
17%
|
2%
|
Intellectual property (IP) theft
|
16%
|
4%
|
Corruption and bribery
|
15%
|
11%
|
Money laundering
|
15%
|
4%
|
In the age of big data, nearly a quarter (23%) of respondents said data breaches resulted in
loss of customer or employee data, while 19% reported loss of IP, trade secrets, or R&D.
More than one in five (22%) suffered data deletion or corruption caused by malware or
system issues, and 19% were victims of data deletion by a malicious insider.
Theft or loss of intellectual property was the most common type of security incident, cited by
38% of those who experienced a security incident in the last 12 months.
Fraud and security concerns impact overseas expansion
Over two-thirds (69%) of executives say their companies have been dissuaded from
operating in a particular country or region due to fraud concerns and just under two-thirds
(63%) because of security threats.
The road to resilience
While insiders are cited as the main perpetrators of fraud, they are also the most likely to
discover it. Almost half (44%) of respondents said that a recent fraud had been discovered
through a whistle-blowing program, and 39% said it had been detected through an internal
audit.
Indeed, three in four respondents indicated that their companies (76%) have adopted
employee-focused anti-fraud measures such as staff training or whistle-blowing hotlines.
82% of respondents have adopted anti-fraud measures focusing on information such as IT
security or technical countermeasures, and 79% have implemented physical security
measures.
The most commonly reported cyber risk mitigation action was conducting in-house security
assessments of data and IT infrastructure, implemented by 76% of survey respondents’
companies.
Dan Karson, Co-Chairman, Kroll Investigations & Disputes, commented: “Companies’
greater use of technology and their increasing reliance on international supply chains means
they are more at risk from fraud than ever before. In our experience, this risk can be
mitigated against by adopting a conscious and proactive approach. Many of the challenges
organizations face could be reduced through the implementation of employee and partner
education programs or a tighter set of policies that help remove avoidable errors and poor
business practices.”
1 The Kroll Annual Global Fraud and Risk Report 2016/17 includes a full detailed industry
analysis across a range of fraud categories and regions. To obtain a copy please visit
http://www.kroll.com/en-us/global-fraud-report
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