PriceWaterhouseCoopers: Fraud and Cyber Crime are increasingly threatening companies currently. Expect this trend to rise further

Today PriceWaterhouseCoopers (www.pwc.com) presented its global survey of economic crime and fraud. It seems that the numbers in cyber crime and fraud are rising. This could be as a consequence of both:

• the increasing interest of people for the yields of fraud and economic crime, due to the credit crisis and the resulting austerity. 
• the increasing awareness of companies that want to save every dollar and Euro they can.

Here are the pertinent snips of both the international report and the UK report. Both reports can be downloaded via the aforementioned link.

International report

Economic crime does not discriminate. It is truly global. No industry or organisation is immune. We have seen a 13% rise since our last survey and organisations see more fraud ahead.

The fallout isn’t just the direct costs: economic crime can seriously damage brands or tarnish a reputation, leading organisations to lose market share. As society becomes less tolerant of unethical behaviour, businesses need to make sure they are building – and keeping – public trust.

Our sixth Global Economic Crime Survey turns the spotlight on the growing threat of cybercrime. Today, most people and businesses rely on the internet and other technologies. As a result, they are potentially opening themselves up to attacks from criminals anywhere in the world. Against a backdrop of data losses and theft, computer viruses and hacking, our survey looks at the significance and impact of this new type of economic crime and how it affects businesses worldwide.

This year’s global report is divided into two sections:

• Cybercrime – its impact on organisations, their awareness of the crime and what they are doing to combat the risks.
• Fraud, the fraudster and the defrauded – the types of economic crime committed, how they are detected, who is committing them and what the repercussions are.

Cybercrime

• Cybercrime now ranks as one of the top four economic crimes.
• Reputational damage is the biggest fear for 40% of respondents.
• 60% said their organisation doesn’t keep an eye on social media sites.
• 2 in 5 respondents had not received any cyber security training.
• A quarter of respondents said there is no regular formal review of cybercrime threats by the CEO and the Board.
• The majority of respondents do not have, or are not aware of having, a cyber crisis response plan in place

Fraud, the fraudster and the defrauded

• 34% of respondents experienced economic crime in the last 12 months (up from 30% reported in 2009).
• Almost 1 in 10 who reported fraud suffered losses of more than US$5 million.
• Senior executives made up almost half of the respondents who didn’t know if their organisation had suffered a fraud.
• 56% of respondents said the most serious fraud was an ‘inside job’.
• Suspicious transaction monitoring has emerged as the most effective fraud detection method (up from 5% in 2009 to 18% in 2011).
• Organisations that have performed fraud risk assessments have detected and reported more frauds 

Our survey results show that fraud is persistent, and that organisations need to be vigilant and proactive when fighting economic crime.

‘Traditional’ frauds like asset misappropriation, accounting fraud and bribery and corruption remain the top three that our respondents fell victim to in the last 12 months.

But ‘new’ types of fraud are emerging – cybercrime in particular.

With new ways of doing business, new technologies and changing work environments, come new risks and new ways for fraudsters to carry out crimes.

Organisations need to be aware of these changes and adapt their response mechanisms and detection methods accordingly. This is even more true when it comes to new technologies.

Smart phones and tablet devices, social media and cloud computing all offer a wealth of attractive business solutions and opportunities, but they can also be a Pandora’s box of risks and dangers. Having a smart phone or a tablet device means carrying around your organisation’s sensitive and confidential data in your pocket which without precautions in place, anyone might be able to access sensitive and confidential information and cause considerable harm, both financial and collateral.

A decade on and the fraud risk continues to rise. Despite the effectiveness of risk management systems being deployed, there are always individuals or groups of individuals who are able to spot an opportunity and circumvent or override controls. This is especially true when it comes to cyber security. As headcounts fall in control functions across the globe, we fear more fraud will go undetected. Advances in technology are fast-paced, as are fraudsters, however organisations are often far behind. But organisations often are. It is now essential to ensure that cyber and information security issues have the standing they warrant on an organisation’s risk register. Those organisations ready to understand and embrace the risks and opportunities of the cyber world, will be the ones to gain competitive advantage in today’s technology driven environment. Establishing the right “tone at the top” is key in the fight against economic crime.

UK Report

Our sixth report paints a dramatic picture of UK organisations still struggling in the face of severe austerity cuts. Economic crime has risen by 8 percentage points since our 2009 survey, with over half of respondents reporting at least one instance of economic crime in the last 12 months.

Even more concerning for Senior executives was the fact that 24% of respondents reported more than ten incidents in the last 12 months. Our findings suggest that the combination of rising economic crime in the UK, and widespread austerity cuts that limit the resources available to focus on economic crime, has made today’s business environment altogether more difficult and risky.

Cybercrime has become the third most common type of economic crime, whilst levels of ‘conventional’ economic crime have fallen (asset misappropriation has fallen by 8 percentage points since 2009, and accounting fraud by 5 percentage points in the same period). So we think organisations need to take a fresh look at how they deal with fraud.

In our 2009 survey, the trend was for more middle managers than Senior executives to be the perpetrators of economic crime internally. This shift has accelerated in the UK, with middle managers now responsible for two thirds of internal fraud. The global trend has gone back to the historical norm, where Senior executives are responsible for the lion’s share of offences. For the most serious economic crime experienced by UK respondents in the last 12 months, the profile of the internal fraudster was reported as:

• male;
• aged between 31 and 40;
• employed with the organisation for between three and five years; and
• educated to high school and not degree level. 

Organisations that have performed fraud risk assessments have detected and reported more frauds. 84% of those who identified an economic crime carried out at least one in the last 12 months. Fraud risk assessments are clearly an important tool in an organisation’s defence against economic crime.

An intriguing difference between the UK and the rest of the world is that in the UK the middle management is responsible for the majority of fraud, while these are the senior executives in the rest of the world.

Expect cyber crime and economic fraud to rise further in the near future. As austerity will continue, the stakes become higher and higher in the coming years.