Corporate fraud on the rise with market slowdown

The tough economic climate has negatively impacted just about every business sector, from real estate to retail, and services to manufacturing. Unfortunately, the lackluster market simultaneously also is stimulating growth of another disheartening trend: corporate fraud. Over the past year, fraud has grown in depth and breadth, becoming more widespread, and increasing in volume and value.
By Staff May 1, 2009

The tough economic climate has negatively impacted just about every business sector, from real estate to retail, and services to manufacturing. Unfortunately, the lackluster market simultaneously also is stimulating growth of another disheartening trend: corporate fraud.

Over the past year, fraud has grown in depth and breadth, becoming more widespread, and increasing in volume and value. According to the latest Kroll Global Fraud Report, the fastest growing types of fraud are information theft—27 percent, up from 22 percent—and regulatory and compliance breaches—25 percent, up from 19 percent. Both areas are up by more than five percentage points from last year’s survey.

More than four out of five companies surveyed (85 percent) have suffered from corporate fraud in the past three years—up from 80 percent in last year’s survey. For larger companies the proportion suffering from fraud rose to 90 percent.

The most common types of fraud in the manufacturing industry are theft of physical assets or stock (53 percent), regulatory or compliance breach (27 percent), vendor, supplier or procurement fraud (25 percent), corruption and bribery (24 percent) and information theft, loss or attack (22 percent).

The poor economy has increased competition for many businesses as typical revenue resources have dried up, says Blake Coppotelli, senior managing director of business intelligence and investigations for Kroll, a risk consulting company.

"To move ahead in today’s climate, many companies have felt the need to pursue higher-risk opportunities to generate new revenue. Some have moved into geographic areas where they are inexperienced, or are dealing with unfamiliar suppliers or partners, Coppotelli says. "Companies that have been forced to cut overhead and other costs often do not dedicate enough resources to mitigating risks."

Coppotelli stresses the importance of training creative and innovative individuals to combat fraud since the perpetrators are incredibly adept and market savvy.