Manufacturing businesses are most exposed to fraud

Paul Boughton

Nearly nine out of 10 (87 per cent) manufacturing businesses were affected by fraud in the last 12 months, more than any other industry sector, according to new figures from the Kroll Advisory Solutions Global Fraud Report.
Companies in the sector saw a substantial increase in the incidence of fraud, with eight out of the 10 categories of fraud tracked for this survey becoming more common this year.
Compared to other sectors manufacturers experienced the highest levels of theft of physical assets (50 per cent), corruption and bribery (29 per cent), management conflict of interest (27 per cent), vendor or procurement fraud (23 per cent) and IP theft (13 per cent). It also experienced the highest average loss due to fraud, with manufacturing businesses who suffered from fraud losing an average of 1.9 per cent of annual revenue.[Page Break]
Future prospects are not bright either, with nine out of 10 manufacturers (90 per cent) believing their exposure to fraud has increased over the past 12 months. Despite this, companies are not addressing the problem; over the past year they were more likely than any other sector to weaken internal controls due to cost-cutting measures (31 per cent did so). For almost every anti-fraud strategy covered in the survey, a substantially smaller number of manufacturing companies plan to invest in the next 12 months than the average across all industries.
IT complexity is seen as the most important factor behind increased exposure to fraud, cited by 44 per cent of firms affected. 
Tommy Helsby, Chairman, Kroll Advisory Solutions, Eurasia: “One look at the global headlines in the past year, from LIBOR-fixing in London to accounting fraud in Tokyo, will tell you that fraud continues to be a pervasive issue, and for each story that enters the public consciousness there are many more that don’t. Increasingly, fraud exhibits industry-specific and regional characteristics, which require detailed knowledge of a market, sector, business process or culture to unearth, redress and prevent. Companies that get complacent about it do so at their own peril.”[Page Break]
Other key findings from the Kroll Global Fraud Report, affecting all sectors, include:
Concern about fraud is dropping faster than fraud itself. Consistently and across all industries and geographies, fraud concerns have abated. These findings suggest many companies have become overconfident about their vulnerability to fraud, which is likely to increase their risks. Companies that lose the most to fraud are those that are less likely to have fraud controls in place.
Emerging markets continued to report high levels of fraud: Africa retains its position as the region with the largest fraud problem.  Outside of Africa, India has the highest number of companies affected by fraud of any region or country (68 per cent), followed by Indonesia (65 per cent). Eight of the 10 frauds covered in the survey were more widespread in India than they were globally. Indonesia experienced the highest rate of information theft (35 per cent) among countries surveyed. [Page Break]
Developed markets also reported significant levels of fraud. Following Indonesia, the US and Russia tied at 26 per cent for the highest rates of information theft compared with the global average of 21 per cent. 
The sixth Kroll Annual Global Fraud Report includes a full detailed industry analysis across a range of fraud categories and regions.

Kroll commissioned The Economist Intelligence Unit to conduct a worldwide survey on fraud and its effect on business during 2012. A total of 839 senior executives took part in this survey. Over one quarter of the respondents were based in North America (26 per cent) and Europe (28 per cent), 24 percent from the Asia-Pacific region, 13 percent from Latin America, and 10 per cent from the Middle East & 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 (17 per cent). One half of the companies polled had global annual revenues in excess of $500 million.

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