This report, the fifth and biggest annual Economist Intelligence Unit Global Fraud Survey, commissioned by Kroll, polled more than 1,200 senior executives worldwide from a broad range of industries and functions in June and July 2011. As ever, it found fraud to be pervasive and protean, with progress made in some areas almost inevitably matched by increasing risks in others. The data this year provide four key insights about the current fraud environment.
Concern is rising about every type of fraud as businesses face a more varied threat. On the surface, the 2011 survey contains some good news. The number of companies affected by the two most common types of fraud has declined. But they are anything but relaxed: instead, the level of concern has increased sharply among respondents. For every fraud covered by the survey, the proportion of respondents saying that their business is highly or moderately vulnerable has risen.
Companies are growing increasingly aware of their exposure to corruption but often still do not have structures in place to address it. Corruption is a growing risk for companies worldwide. Its prevalence has shown the biggest increase of any of the frauds covered in the survey, nearly doubling from 10% last year to 19% in the latest survey. This is occurring in an environment of ever greater regulatory scrutiny. As a result, concern about corruption has grown to the extent that it is one of the biggest fraud issues for companies: 47% now describe themselves as at least moderately vulnerable to corruption, more than for every fraud except information theft. More strikingly, 24% say that they are highly vulnerable to corruption, more than triple the level last year and the highest figure for any fraud in the survey. This is having an impact on investment decisions.
The battle against information theft remains a leading focus for companies. The prevalence of information theft declined in the last year, but that does not mean that companies are confident that they have the problem under control. Instead, their concerns have increased. One-half of respondents consider themselves moderately or very vulnerable to this fraud, up from 38% in 2010. IT complexity is the leading cause of increasing fraud exposure in the survey. It is therefore no surprise that IT security is the most widespread anti-fraud investment planned for the coming year. Part of the reason for this concern may be that, typically, information theft tends to be more expensive than the other most widespread fraud, physical theft.
Those hit hardest by fraud often have no one but themselves to blame. This year's fraud survey calculates the economic cost of fraud in a new, more direct way by asking respondents what proportion of revenue their company has lost in the last year. For the survey as a whole, fraud cost companies 2.1% of earnings in the last 12 months, which equates to a whole week's revenue over the course of a year. But 18% of companies lost more than 4% of revenues to fraud, and a quarter of this group lost more than 10%. Analyzing these firms reveals certain common characteristics. The first lesson is that anyone can be hurt. Geography and industry are certainly factors, but not dominant ones. The bigger differences are in how these companies deal with the risk of fraud. Their defenses are weaker. They are much less likely to have invested in any of the anti-fraud measures covered in the survey, which leaves the most affected much more open to fraudsters.
