According to the Kroll Annual Global Fraud and Risk Report, 86% of respondents with operations in China experienced a fraud incident in 2016. One third of these respondents named senior or middle management as key perpetrators. 25% of surveyed senior executives worldwide were dissuaded from operating in China due to co
According to the Kroll Annual Global Fraud and Risk Report, 86% of respondents with operations in China experienced a fraud incident in 2016. One third of these respondents named senior or middle management as key perpetrators. 25% of surveyed senior executives worldwide were dissuaded from operating in China due to concerns over fraud
Fraud and cyber incidents are now the “new normal” for companies across the world, according to the 2016/17 Kroll Annual Global Fraud and Risk Report1 which surveyed 545 senior executives worldwide across multiple industries and geographies. The proportion of companies that 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.
The situation in China is somewhat more concerning as 86% of companies surveyed there reported fraud in 2016, above the global average of 82% and representing a double-digit (13%) increase from 2015. Respondents in China named regulatory or compliance breaches as the most common type of fraud (41%), nearly double the global average. This was followed by vendor, supplier, or procurement fraud, which was 11% higher than the global average.
Other significant types of fraud reported in China included theft of physical assets or stock as well as theft of data and information. Chinese companies surveyed also fell victim to above average rates of corruption and bribery, market collusion, and the misappropriation of company funds. In addition, such respondents identified joint venture partners as the key perpetrators of fraud (52% of cases, more than two times the global average).
Colum Bancroft, Managing Director and Co-Head of Kroll's Greater China Investigations and Disputes practice commented, “Fraud in China has become increasingly complex and challenging. A quarter of survey respondents, a higher proportion than all other countries and regions surveyed, indicated that they were dissuaded from operating in China due to concerns over fraud and corruption. Apart from junior employees, fraud in China was often committed by senior or middle management, resulting in potentially more significant losses. It also often involved cross-departmental and multiple-party-collusion, rendering many traditional internal control measures ineffective.”
“To complicate the issue, the rapid expansion and quick staff turnover of companies mean there is a lack of continuity in corporate governance and fraud detection, whilst fraudsters in China are becoming more enterprising and systematic, posing potentially greater threats to the victims.”
A majority of respondents in China had invested in partner, client or vendor due diligence (90%) and protection of physical asset (86%) to combat fraud, followed by board engagement in cyber policies and procedures (86%). Companies in China showed the highest percentage of fraud cases that were discovered by whistleblowers within the company (55%) and through an external audit (55%).
Violet Ho, Senior Managing Director, Co-Head of Kroll's Greater China Investigations and Dispute practice, added: “China is the dominant trading partner of many countries, therefore, it wouldn't be in the best interest to shy away simply because of concerns over fraud. Managing fraud risk in China is achievable with a clear and consistent strategy. It is essential to treat the fight against fraud as a long-term game. Getting the most out of the whistle-blowing system, ensuring independence of investigations and building a strong compliance culture with the right tone from the top could be effective approaches to mitigate risks.”
Similarly, cyber incidents were also prevalent in China, with 86% of respondents having experienced a “cyber incident” in the past 12 months. Email-based phishing attack (41%), virus/ worm infestation (39%) and data deletion or corruption by malware or system issues (39%) were the most common types of incidents reported.
Respondents in China also showed high exposure to cyber-incidents having the highest incidence globally of customer records (82%) being targeted in cyber-attacks, which was more than double of the global incidence average. Other popular targets were trade secrets and R&D or intellectual property. 48% stated that company relationship with regulatory authorities was also strongly affected by cyber-attacks.