Although often reluctant to discuss it, almost every business will at some point have been the victim of corporate fraud. The extent to which industries experience different categories of corporate fraud varies according to the nature of their business. For example, companies that deal with physical assets, such as consumer goods and retail, are more likely to suffer from the theft of physical assets or supplier fraud. Meanwhile, those that operate in the "knowledge economy", such as professional services or technology, are more likely to be concerned about information theft or intellectual property issues.

Industries also vary in terms of the extent to which they are addressing the problem. For example, financial services which, given the nature of their business, face especially acute threats from internal financial fraud or money laundering, are obliged from a regulatory perspective to demonstrate that they have strong controls in place. Less heavily regulated industries may not have this impetus, but they nevertheless are likely to adopt some measures—whether financial controls or information technology (IT) security—to prevent or detect fraudulent activity.

The objective of this report is to examine the problem of corporate fraud, both for business in general and within particular industries, and to explore the approaches that companies take to minimise their exposure to these threats. The findings are based on a survey, commissioned by Kroll, of nearly 900 senior executives worldwide, 40% of whom are C-level, or board-level executives. The key findings include the following:

Corporate fraud is a serious, widespread challenge that takes multiple forms.

• In the past three years, four out of five firms have suffered from some form of corporate fraud. Particularly widespread is the theft of physical assets or stock, which was experienced by 34% of surveyed respondents, while one-fifth of firms suffered from information theft, management conflict of interest, financial mismanagement, internal financial fraud, procurement fraud, and corruption and bribery.
• Over the same period, the average damage from corporate fraud among large companies—defined as those with an annual turnover of more than US$5bn—was more than US$20 million, with about 1 in 10 losing more than US$100 million.
• The theft of, loss of, or attacks on information are a major concern, with 20% of respondents describing themselves as highly vulnerable here and 31% believing that IT complexity has increased their exposure to fraud.
• More generally, nearly half of companies rank themselves as at least moderately vulnerable to a very wide range of threats: regulatory or compliance breach (50%); management conflict of interest (49%); financial mismanagement (49%); procurement fraud (47%); theft of physical assets (47%); corruption and bribery (46%); and intellectual property (IP) theft (45%).

The prevalence of corporate fraud has held steady recently, but new business models driven by globalisation are increasing exposure at most companies.

•  Respondents are divided as to whether corporate fraud is on the increase. Roughly one-third of those surveyed think that the prevalence has stayed the same, one-third say that it has increased, and one-third say that it has decreased.
•  Eighty-one percent of firms report that their exposure to corporate fraud has grown. The most frequent cause of this increased exposure is high staff turnover, which is cited by 32% of respondents. Close behind are complex IT arrangements (31%), entry into new markets (28%) and increased collaboration between firms (26%)—all of which are factors that are closely tied with modern business practice. Entry into new markets is of particular concern for larger firms (38%).

Companies treat corporate fraud as largely a financial and IT issue, but too many are insufficiently prepared for these and other risks.

• Most businesses (58%) give the internal audit/finance function the lead role in dealing with corporate fraud. The most widespread strategies used to combat the problem are financial controls (used in this respect at 79% of firms) and IT security (70%). This approach makes sense, as many of the biggest fraud problems relate to finance and technology.
• The same numbers suggest, however, that a surprising 21% of firms do not use financial controls for this purpose and 31% do not use IT security.
• These strategies also only indirectly address the most frequent form of corporate fraud—theft of physical property—against which only two-thirds of firms have measures in place to protect themselves.

Although this report focuses on differences in corporate fraud between sectors, certain risks are far more strongly correlated with company size and location.

• Larger companies are obviously bigger targets. On average, they lose six times more money to corporate fraud than smaller ones.
• The extent of corruption and bribery varies widely from one region to another. The proportion of firms that has recently suffered from it in the Middle East and Africa (39%) is by some distance the highest. But more than twice as many Eastern European respondents have experienced the problem than those from Western Europe, (14%), and more than three times as many from Latin America (29%) as from North America (9%).
• Internal financial fraud shows a similar geographic pattern: Middle East and Africa (46% of firms), Eastern Europe (28%), Western Europe (18%), and North America (14%).
•  Regional variations with intellectual property theft and counterfeiting are closely linked to countries rather than regions. Among firms operating in the China, 38% have experienced such fraud in the past three years, compared with just 14% in rival developing economy India. The latter compares favourably with the overall figure of 19%, and even the 9% reported among Canadian and U.S. respondents. That one in eleven firms in the latter still suffer from this problem, however, speaks of relative rather than absolute success in addressing it.

The frequency of the most widespread types of corporate fraud, and those giving rise to the most concern, vary relatively little by region.

• Theft of physical assets was reported by between 32% and 40% of firms in all regions.
• Between 24% and 31% of companies had suffered information attack in most areas, except North America (16%) and Latin America (18%).