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Information Theft at Companies Surpasses All Other Forms of Fraud for First Time

Information Theft At Global Companies Surpasses All Other Forms of Fraud for First Time. Corporate Information Technology Systems are Increasingly Under Threat 

Theft of information and electronic data at global companies has overtaken physical theft for the first time, according to the latest edition of the Kroll Annual Global Fraud Report, a global fraud study that surveyed more than 800 senior executives worldwide.  This year’s study shows that the amount lost by businesses to fraud rose from $1.4m to $1.7m per billion dollars of sales in the past 12 months – an increase of more than 20%. 

While physical theft of cash, assets and inventory has been the most widespread fraud by a considerable margin in previous Global Fraud Reports, this year’s findings reveal that theft of information or assets was reported by 27.3% of companies over the past 12 months, up from 18% in 2009. In contrast, reported incidences of theft of physical assets or stock declined slightly from 28% in 2009 to 27.2% in 2010.

According to the 2010 survey, 88% of companies said they had been the victim of at least one type of fraud during the past year. Of the specific countries analyzed, China is the top market in which companies suffered fraud with 98% of businesses operating there affected. Colombia ranked second with a 94% incidence of fraud in 2010, followed by Brazil with 90%.

“Theft of confidential information is on the rise because data is increasingly portable and perpetrators – often departing or disgruntled employees – can remove it with ease absent sufficient controls. At the same time, there is a growing awareness among thieves of the increasing intrinsic value of an organization’s intellectual property," said Robert Brenner, vice president of Kroll’s Americas region.  "The results of the survey do not suggest other types of fraud are decreasing but merely that the rise in theft of intellectual capital has outstripped other fraudulent activity that has remained constant. Companies need to regularly evaluate how they are controlling access to information within their organization to ensure they are keeping pace with technological advancement and the imperative for collaboration in the workplace,” Brenner added.

Information-based industries reported the highest incidence of theft of information and electronic data over the past 12 months. These include financial services (42% in 2010 versus 24% in 2009), professional services (40% in 2010 versus 27% in 2009) and technology, media and telecoms (37% in 2010 versus 29% in 2009).

The speed of technological developments poses new challenges in the fight against fraud. Nearly one-third (28%) of respondents cited information infrastructure complexity as the single most important factor in raising their exposure to fraud. Despite the increased risks, only 48% of companies are planning to spend more on information security in the next 12 months, down from 51% last year. (Related Report: US and Europe Lag Asia in IT Security Spending Outlook, Maturity)

Other key findings include:

• Corporate information technology systems are increasingly under threat -  Criminals have always targeted physical assets because they are present in almost all companies, are frequently simple to steal, and have a tangible value which makes them easy to convert to financial gain. This year’s survey shows how far technology has become an issue for those fighting fraud. Respondents report that the complexity of information infrastructure is the single most widespread factor in raising exposure to fraud, cited by 28%. When respondents were asked which of a series of 10 elements were involved in frauds they had suffered in the last year, the two most common elements were technology-related: phishing attacks (20%) and the increased use of technology (18%).

Fear of fraud dissuades nearly half of companies surveyed from becoming more global - 48% of respondents indicated that fraud had dissuaded them from pursuing business opportunities in at least one foreign country. The biggest impact has been on emerging economies, with fraud deterring 11% of businesses operating in China and similar percentages of businesses operating in Africa (11%) and Latin America (10%). Respondents claimed they managed risk in these countries simply by avoiding the regions, even though they may offer attractive investment opportunities.

Companies are unprepared for regulation - Increased regulation through the Foreign Corrupt Practices Act (FCPA) and the introduction of the UK’s new Bribery Act has created new challenges for companies. According to the survey, nearly two-thirds (63%) of businesses with operations in the US or UK believe the laws do not apply to them or are unsure. As a result, many are unprepared to deal with the regulatory risks: less than one-half (47%) are confident that they have the controls in place to prevent bribery at all levels of the operation, compared with 42% who say they have assessed the risks and put in place the necessary monitoring and reporting procedures.

Fraud is usually an ‘inside job’ - For those companies who have been affected by fraud over the past year, junior employees and senior management were the most likely perpetrators at 22% each, followed by agents or other intermediaries at 11%. The proportion of fraud carried out by these employees ranged from 50% to 60% in North America, Europe and Asia-Pacific to 71% in the Middle East and Africa. The number dropped to 42% in Latin America where customers are the primary fraudsters.

The report was commissioned by Kroll and conducted by the Economist Intelligence Unit to run a survey on fraud and its effect on business during 2010. A total of 801 senior executives took part in this survey. Nearly a third (29%) of the respondents were based in North America, 25% in Europe, just under a quarter from Asia-Pacific region and 11% each from Latin America and 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 (13%). A total of 51% of the companies polled had global annual revenues in excess of $500m.

The fourth Kroll Annual Global Fraud Report includes a full detailed industry analysis across a range of fraud categories and regions.  A full copy of the report is available at no charge at: http://www.kroll.com/fraud

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