Fraud Up 22 Percent With Companies Losing An Average $8.2 Million Over Past Three Years

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Kroll report shows growing volume and value of fraud during tougher economic times.

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.

The average company loss to fraud has increased by 22% largely driven by the credit crunch and tough economic climate, according to the latest Kroll Global Fraud Report. Companies lost an average of $8.2 million to fraud in the past three years, compared to last year's figure which stood at $7.6 million. The figures are a result of a survey Kroll commissioned from the Economist Intelligence Unit of 890 senior executives worldwide.

The fastest growing types of fraud were information theft (27%: up from 22%) and regulatory and compliance breaches (25%: up from 19%), both up by more than five percentage points from last year's survey.

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

More than four out of five companies surveyed (85%) have suffered from corporate fraud in the past three years, up from 80% in last year's survey. For larger companies the proportion suffering from fraud rose to 90%.    

Commenting on the findings, Blake Coppotelli, senior managing director in Kroll's Business Intelligence & Investigations division said: "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."

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

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

The Kroll Global Fraud Report includes detailed industry analysis across a range of different fraud categories and regions.

Other key findings include:

  •     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

Methodology
Kroll commissioned the Economist Intelligence Unit to conduct its second worldwide survey on fraud and its effect on business during 2008. A total of 890 senior executives took part in this survey. A third of the respondents were based in North and South America, 30% in Asia-Pacific, just over a quarter in Europe and 11% in the Middle East and Africa.

Ten industries were covered, with no fewer than 50 respondents drawn from each industry. The highest number of respondents came from the professional services industry (16%) followed by financial services (13%) and technology, media and telecoms (11%). A total of 42% of the companies polled had global annual revenues in excess of $1billion.

This report brings together these survey results with the experience and expertise of Kroll and a selection of its affiliates.

Obtain a copy of the Kroll Global Fraud Report(September 2008).

About Kroll
Kroll, the world's leading risk consulting company, provides a broad range of investigative, intelligence, financial, security and technology services to help clients reduce risks, solve problems and capitalize on opportunities. Headquartered in New York with offices in more than 65 cities in over 33 countries, Kroll has a multidisciplinary team of more than 3,800 employees and serves a global clientele of law firms, financial institutions, corporations, non-profit institutions, government agencies, and individuals. Kroll is a subsidiary of Marsh & McLennan Companies, Inc. (NYSE: MMC), the global professional services firm.

About the Economist Intelligence Unit
The Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist. Through our global network of about 700 analysts, we continuously assess and forecast political, economic and business conditions in 200 countries. As the world's leading provider of country intelligence, we help executives make better business decisions by providing timely, reliable and impartial analysis on worldwide market trends and business strategies.

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Emilie Moghadam
Kroll
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