Financial Services Industry Hit Hardest by Fraud According to Global Report

Out of 10 industries surveyed, half experienced a spike in fraud activity and the remaining saw a decline; the global fraud rate remained steady

BOSTON, October 19, 2009 (AllPayNews.com) – The global financial services industry saw a dramatic spike in fraud activity with companies losing an average of $15.2 million over the past three years, according to the latest edition of the Kroll Annual Global Fraud Report, released today at the Association of Corporate Counsel’s 2009 Annual Meeting in Boston. Despite sector-specific spikes and declines in fraud activity, the worldwide fraud rate remained steady in 2009. Companies lost an average $8.8 million to fraud over the past three years, an increase of seven percent over last year’s figure which stood at $8.2 million. The findings are the result of a survey Kroll commissioned from the Economist Intelligence Unit of more than 700 senior executives worldwide.

Fraud levels varied markedly by sector with five industries experiencing a rise in fraud losses (financial services; professional services; healthcare, pharmaceuticals & biotechnology; retail, wholesale & distribution; and travel, leisure & transportation) and five sectors reporting declines (manufacturing; technology; media & telecoms; natural resources; and consumer goods & construction).

Blake Coppotelli, senior managing director in Kroll’s Business Intelligence and Investigations unit said:

“Traditionally every downturn brings about a rise in fraud, but what we are seeing in 2009 is something far more complex. Companies are seeing greater vulnerability due to reduction in internal controls, pay cuts and reduced revenue across the board, but counteracting this increased risk are the realities of today’s constrained business environment, where factors such as high staff turnover, entry into new markets and inter-firm collaboration are far less common than in years past. In short, the current economic crisis has increased the motive for fraud, but decreased the opportunity.

Of course, this shift in business behavior is only as lasting as the economic crisis itself, which is why companies must work to bolster their existing anti-fraud strategies in preparation for the economic changes to come.”

Overall, 30 percent of companies reported the current economic climate had directly increased their exposure to fraud over the past 12 months, with only five percent reporting a decline. Of all the regions surveyed North America experienced the highest incidence of fraud as a result of the global financial crisis (32 percent).

Other key findings include:

The Middle East and Africa experienced the worst fraud levels of all the regions with companies losing an average $11.5 million and seeing the highest incidence rate in seven out of the 10 frauds surveyed
North America was no longer the low fraud leader with seven out of 10 fraud incidences showing an increase over 2008 figures. Companies experiencing internal financial fraud and financial mismanagement rose substantially, however theft of physical assets, corruption and vendor fraud were lower than any other region
Larger companies with annual sales of over $5 billion reported greater average losses (rising to $25.8 million from $23.3 million in 2008), while the situation improved for smaller businesses with yearly revenue under $5 billion (dropping to $4.6 million from $5.5 million last year).
The third Kroll Annual Global Fraud Report includes a full detailed industry analysis across a range of fraud categories and regions. To obtain a copy please visit www.kroll.com/fraud.

Methodology
Kroll commissioned The Economist Intelligence Unit to conduct a worldwide survey on fraud and its effect on business during 2009. A total of 729 senior executives took part in this survey. A little more than a third of the respondents were based in North and South America, 25 percent in Asia-Pacific, just over a quarter in Europe and 11 percent 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 financial services industry (12 percent). A total of 46 percent of the companies polled had global annual revenues in excess of $1 billion.

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 60 cities in over 29 countries, Kroll has a multidisciplinary team of more than 3,000 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.