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Kroll report shows fraud, bribery and corruption risk are on the rise

March 10th, 2017 - Posted by Mark Dunn in Anti-Bribery And Corruption

The risk of fraud is increasing, according to the Kroll 2016/17 Global Fraud & Risk Report. 82% of senior executives interviewed said they had experienced an incident of fraud in the past year, but the level of risk varies in different countries and industries. See what types of risk mitigation strategies are being adopted.

 Money laundering risk quadruples

The report finds that the risk of fraud is increasing. 82% of those surveyed experienced an incident of fraud in the last year, which is an increase from 75% in the 2015/16 report. The report is based on interviews with 545 senior executives from companies from Europe, the Asia-Pacific region, North America, the Middle East, Africa and Latin America, who work in in industries such as financial services, technology, construction, retail, healthcare and pharmaceuticals. It shows that companies in every industry and country face a real and growing risk of fraud.

The survey finds that executives reported more instances of every type of fraud compared to 2015. Money laundering was almost four times more likely to happen in 2016 compared to 2015, as 15% of executives reported it compared to 4% previously. The rate of bribery and corruption increased from 11% to 15%. 21% of executives reported that there had been a regulatory or compliance breach, compared to 12% in 2014. The risk of fraud taking place in supply chains also increased: vendor, supplier or procurement frauds were reported by 26% of executives, compared to 17% in 2015.

The report gives an insight into the wide range of negative effects that a case of fraud can have on a company. 57% of executive estimated that fraud had cost them between 1% and 3% of their total revenue, and many pointed to the effects on business continuity. But the costs are not just economic: 78% of executives said that fraud incidents had strongly or somewhat affected employee morale, 73% said it had affected customer morale, and 71% said it had damaged the company's reputation.

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Risk mitigation measures in place

A large majority of executives interviewed said their company has adopted anti-fraud measures. 82% have put in place IT security and technical countermeasures to fraud. 78% have employed a risk officer or implemented a risk management system. 77% have taken measures against financial fraud, including anti-money laundering policies and an internal audit. 77% carry out due diligence on partners, clients and vendors. 76% have trained staff about fraud or set up a whistleblower hotline. 72% have implemented reputational measures such as media monitoring. But these numbers show that many companies are not sufficiently protected against fraud. If 77% of companies are carrying out third-party due diligence, it implies that 23% are not. These companies are exposed to serious financial, legal and reputational risks. As the report rightly notes, "it is clear that more and continuous effort is needed to build and sustain resilience".

Risk levels vary by country and industry

A majority of respondents in all industries believe that exposure to fraud has increased over the last 12 months, but there are variations between industries. 89% of executives in the manufacturing sector said they had experienced fraud in the last 12 months, with 51% citing entry to new and riskier markets as the main reason. 89% of financial services companies and 83% of those involved in retail, wholesale and distribution reported an incident of fraud.  70% of executives in the construction, engineering and infrastructure sector reported a fraud, and 86% believe exposure to fraud has increased. This is useful information for companies when assessing the level of risk to attach to a third party and therefore how much due diligence is required.

The report shows that companies are so worried about the varying levels of risk of fraud posed by different countries that many of them will not do business in a high-risk country. 69% of executives said they were dissuaded from operating in a particular country or region in the last year because it would bring heightened exposure to fraud. As a result, these companies are missing opportunities to make deals in potentially lucrative markets. Rather than blacklist a country altogether, companies should implement a risk-based due diligence system. This means carrying out more in-depth due diligence investigations into third parties that appear to carry a higher risk of financial crime. With proper due diligence in place, companies can make more informed decisions on whether or not to do business in a new market.

3 Ways to Apply This Information Now

1. Read more about anti-bribery and corruption topics on the blog.
2. Learn how LexisNexis solutions complement your risk mitigation workflow.
3.  Share this blog on LinkedIn to keep the dialogue going with your colleagues and contacts.

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