82% of executives surveyed worldwide experienced a fraud incident in the past year compared to 75% in 2015, according to the Kroll Annual Global Fraud and Risk Report.
Fraud, cyber, and security incidents are now the "new normal" for companies across the world, according to the executives surveyed for the 2016/17 Kroll Annual Global Fraud and Risk Report.
The proportion of executives that reported their companies fell victim to fraud in the past year rose significantly to 82%, from 75% in 2015 and 70% in 2013, highlighting the escalating threat to corporate reputation and regulatory compliance.
Cyber incidents were even more commonplace, with 85% of executives surveyed saying their company has suffered a cyber incident over the past 12 months. Over two-thirds (68%) reported the occurrence of at least one security incident over the course of the year.
The threat from within
Despite widespread concerns about external attacks, the findings reveal that the most common perpetrators of fraud, cyber, and security incidents over the past 12 months were current and former employees.
Six out of ten respondents (60%) who worked for companies that suffered from fraud identified a combination of perpetrators that included current employees, former employees, and third parties. Almost half (49%) said incidents involved all three groups. Junior staff were cited as key perpetrators in two-fifths (39%) of fraud cases, followed by senior or middle management (30%) and freelance or temporary employees (27%). Former employees were also identified as responsible for 27% of incidents reported.
Overall, 44% of respondents reported that insiders were the primary perpetrators of a cyber incident, with former employees the most frequent source of risk (20%), compared to 14% citing freelance or temporary employees and 10% citing permanent employees.
Adding agents or intermediaries to this "insider" group as quasi-employees increases the proportion of executives indicating insiders as the primary perpetrators to a majority, 57%.
Over half of respondents (56%) said insiders were the key perpetrators of security incidents, with former employees again the most common of these (23%).
Tommy Helsby, Co-Chairman, Kroll Investigations & Disputes, commented: "This year's Kroll Global Fraud and Risk Report shows that it's becoming an increasingly risky world, with the largest ever proportion of companies reporting fraud and similarly high levels of cyber and security breaches. The impact of such incidents is significant, with punitive effects on company revenues, business continuity, corporate reputation, customer satisfaction, and employee morale."
"With fraud, cyber, and security incidents becoming the new normal for companies all over the world, it's clear that organizations need to have systemic processes in place to prevent, detect, and respond to these risks if they are to avoid reputational and financial damage."
Increasingly complex threats
The vast array of perpetrators and ever-evolving nature of incidents reflect an increasingly complex risk management environment for businesses.
Every category of fraud has seen a marked increase between 2015 and 2016. The greatest increases were in the areas of market collusion (15%) and misappropriation of company funds (11%). Theft of physical assets remained the most prevalent kind of fraud suffered in the past year (reported by 29% of respondents), followed by vendor, supplier, or procurement fraud (26%).
A broad range of cyber incidents were reported. The single most common type of incident reported was a virus or worm infestation, reported by one-third of all companies (33%), followed by an email-based phishing attack (26%).
In the age of big data, nearly a quarter (23%) of respondents said data breaches resulted in loss of customer or employee data, while 19% reported loss of IP, trade secrets, or R&D. More than one in five (22%) suffered data deletion or corruption caused by malware or system issues, and 19% were victims of data deletion by a malicious insider.
Theft or loss of intellectual property was the most common type of security incident, cited by 38% of those who experienced a security incident in the last 12 months.
Fraud and security concerns impact overseas expansion
Over two-thirds (69%) of executives say their companies have been dissuaded from operating in a particular country or region due to fraud concerns and just under two-thirds (63%) because of security threats.
The road to resilience
While insiders are cited as the main perpetrators of fraud, they are also the most likely to discover it. Almost half (44%) of respondents said that a recent fraud had been discovered through a whistle-blowing program, and 39% said it had been detected through an internal audit.
Indeed, three in four respondents indicated that their companies (76%) have adopted employee-focused anti-fraud measures such as staff training or whistle-blowing hotlines. 82% of respondents have adopted anti-fraud measures focusing on information such as IT security or technical countermeasures, and 79% have implemented physical security measures.
The most commonly reported cyber risk mitigation action was conducting in-house security assessments of data and IT infrastructure, implemented by 76% of survey respondents' companies.
Dan Karson, Co-Chairman, Kroll Investigations & Disputes, commented: "Companies' greater use of technology and their increasing reliance on international supply chains means they are more at risk from fraud than ever before. In our experience, this risk can be mitigated against by adopting a conscious and proactive approach. Many of the challenges organizations face could be reduced through the implementation of employee and partner education programs or a tighter set of policies that help remove avoidable errors and poor business practices."
(Source: Kroll)
Mark Roper, Commercial Director at Collinson Group discusses a bank’s role in preventing fraudulent activity.
Telco TalkTalk suffered its second data breach in a year recently, as the Wi-Fi codes of 57,000 customers were revealed, while in December a cyber-attack on Tesco Bank forced the company to repay £2.5 million of losses to over 9,000 customers.Experts claim that customers who don’t bank with Tesco Bank were also left at risk of cybercrime because the bank issued sequential debit card numbers, which means it is easier for hackers to work undetected as they move through customer accounts quickly. While cyber threats aren’t just of concern to financial organisations, these high-profile cases have ensured that banks recognise the need to invest more money in protecting customer’s data at wearehivemind.com.
The scale of fraud continues as internet use grows. In Singapore alone, 72 per cent of residents have experienced cyber-crime in their lifetime. The cost of which almost exceeds US$1 billion. Meanwhile, cyber-attacks are predicted to cost Middle Eastern economies more than US$100 billion by 2020. Social media also plays its role in identity fraud. In 2015 there was a 52 per cent rise in younger victims of cybercrime in the UK due to their use of social networks.
For decades, financial services organisations have provided add-ons to accounts and cards that protect someone’s computer when it stops working, an antique when it gets broken, or luggage when it gets lost. But, when a customer’s identity gets stolen there are few products on offer that either help to resolve the matter quickly or better still prevent it from happening in the first place.
The current scenario
It’s pretty much impossible not to interact with a financial services brand online now almost 60 percent of us use online banking. Not only does it provide a valuable service to customers and deliver cost efficiencies, it also enables banks to collate, analyse and use this data as an important asset. It helps them to understand their customers’ behaviours and tailor products and services to them that encourage customer loyalty.
Most of us do not think twice about where their personal information is being stored online, trusting that it is being protected. Banks should ensure that their customers understand the benefits of ID protection, and the impacts of phishing. When we polled 6,125[3] of the top 10-15 percent of earners globally (the middle-class mass affluent), we found that there’s a strong demand for ID protection with 57 percent of consumers seeing ID protection as a valuable product. Looking across generations, it’s the millennials (62 percent) and generation X (58 percent) who rate ID protection as more important than the global average.
With more of our personal data being stored online, it’s not clear why identity theft protection is rarely provided as a benefit on a card or account, or within a loyalty programme. It is certainly not due to a lack of consumer demand.
As the facilitators of online transactions and holders of valuable data, retail banks could seize the opportunity to provide their customers peace of mind and enrich their digital experiences by offering identity protection products.
An opportunity for financial service providers
With the falling of the interchange fee credit card loyalty programmes aren’t as lucrative they once were for banks. This creates a strong argument for banks to provide ID protection as a value-added benefit. When Collinson Group conducted their mass affluent research, it was revealed that only 13 percent purchase it from their bank; much lower than specialist providers (22 percent) and credit card providers (20 percent). Educating customers on the importance of online protection and offering specialist products will help banks re-establish trust with their customers, encourage a better digital customer experience and help build brand loyalty.
At Collinson Group, we recommend that banks consider three points. How do their customers …
- Mitigate risk of public or stolen personal information online
Criminals scan the internet for personal information that can be used illegally or traded on the ‘dark web’. Banks need to be providing online monitoring platforms to mitigate the risk of customers falling victim to identity crime.
Monitoring solutions will alert customers when they are in danger of fraud or identity theft, and classify the level of risk. Details of any potential security risks or breaches can be viewed and assessed, so that action can be taken as required.
- Protect lost or stolen cards and documents
Card and document assistance helps keep a customer’s identity secure in the event that cards, documents, and data is lost or stolen. Assistance in blocking or cancelling lost or stolen cards, while making sure that copies of important documents are stored securely for easy retrieval, will allow access to missing items without delay.
- Protect personal information when online, across multiple devices
Today’s consumers access services and information across a variety of devices. Whether customers use their desktop, or a mobile while on the move, protection from phishing and key-logging attacks (two of the fastest-growing online threats) can be offered.
Final thoughts
Banks have provided additional products to protect our homes, cars and livelihoods as part and parcel of their services for years. As more of us spend time on social media, and indeed the vast majority of transactional banking is done online, banks need to help us protect our identities and personal information from fraud too. Ensuring consumers understand the importance of ID protection, and providing it as an additional customer service will help banks build trust with their customers and build loyalty towards their brand.
Law enforcement and prosecution authorities from Germany and the Netherlands, supported by Eurojust and Europol, have dismantled a gang responsible for defrauding Member States of approximately €150 million in a joint action targeting VAT fraud. Nine individuals were arrested and 26 premises searched.
The coordinated action was initiated by the Prosecution Office for Serious Fraud and Environmental Crime in Zwolle and the Fiscal Information and Investigation Service in Almelo in the Netherlands, in close cooperation with the Public Prosecutor’s Office of Augsburg and the Bavarian State Criminal Police Office in Germany. In total, 11 territories were involved, including nine Member States.
This action is part of a large-scale investigation on organised VAT fraud named Operation Vertigo, formed by the Czech Republic, Germany, the Netherlands, Poland, Eurojust and Europol.
Combating carousel fraud is an EU priority in the fight against serious and organised crime. Following the operation, Mr Michael Rauschenbach, Head of Operations for Serious and Organised Crime at Europol, said: “This action sends the clear message that Europol and its partners are determined to pursue criminals involved in organised VAT fraud. Europol strongly supports EU Member States’ investigations in this area and, for the past six years, has had a fully dedicated team of specialists to tackle this form of crime. Operation Vertigo is an example of how working in close cooperation with EU Member States and partners such as Eurojust from the early stages of the investigations achieves excellent results and operational successes. Europol will continue to offer its unique capabilities and full assistance to eradicate carousel fraud.”
Carousel fraud is financial fraud that is an abuse of the VAT system resulting in the fraudulent extraction of revenue. It may involve any type of standard-rated goods or services. As with acquisition fraud, goods or services are acquired zero-rates from the European Union, with the acquirer then going missing without accounting for the VAT due on the onward supply.
