The impact and nature of fraud have changed in 2022 as the world recovers from the COVID-19 pandemic.
The highly volatile economic and geopolitical climate has created numerous problems for businesses and people worldwide. Financial instability and employment uncertainty have heightened these risks, increasing the chances of fraudulent activities that could hurt businesses further.
Fortunately, research shows that the fraud rate among businesses remains stable this year. According to a report from PwC, fraud, corruption, and economic crimes have not increased since 2018. Forty-six percent of companies surveyed reported experiencing fraud, corruption, and economic crime in 2022, against 47 percent in 2020 and 49 percent in 2018.
But the problem is the substantial impact of these crimes on large and small businesses. Their nature is also a cause of concern as technological advancements open new avenues for fraud and economic crime. In this article, we present seven statistics that businesses should know about this issue.
52% of large companies experienced fraud in the last 24 months that cost them dearly
According to PwC, among companies with global annual revenues over $10 billion, 52 percent experienced fraud during the last two years. Almost one in five said that their most disruptive incident cost more than $50 million. The number of smaller companies with less than $100 million revenue affected was lower – 38 percent experienced fraud, of which about one in four faced a total impact of more than $1 million.
Consumers losing money to fraud has increased significantly in 2021
Data from the US Federal Trade Commission shows that consumers lost over $5.8 billion to fraud in 2021, up from around 70 percent in 2020. More than 2.8 million consumers reported crimes to the FTC last year. The most common issue was imposter scams, followed by online shopping scams.
The top categories of fraud were prizes, sweepstakes, lotteries, internet services, and business and job opportunities. Over $2.3 billion of losses were attributed to imposter scams—up from $1.2 billion in 2020, while online shopping was the reason for about $392 million— increasing from $246 million in 2020.
Cybercrime was the biggest issue for most companies except the largest
Across organizations of most sizes, cybercrime poses the most significant threat, followed by customer fraud and asset misappropriation, according to the PwC report. Among companies with less than $100 million in revenue, 32 percent reported cybercrime as the biggest concern, 27 percent said customer fraud, and 23 percent reported asset misappropriation. Among companies with revenue from $100 million to $ 1 billion, 41 percent experienced cybercrime, while 32 and 23 percent experienced customer fraud and asset misappropriation.
Forty-two percent of businesses with revenue between $1 billion and $10 billion experienced cybercrime, while 34 percent experienced customer fraud and 24 percent experienced asset misappropriation.
The trend changes in companies with over $10 billion in revenue. Customer fraud is the biggest issue in this category, with 35 percent experiencing it. Thirty-two percent of companies reported experiencing cybercrime, and 31 percent reported experiencing asset misappropriation.
Procurement fraud beats all other crimes in just one sector
One sector that does not see cybercrime as the biggest challenge is the energy, utilities, and resources (EU&R) sector, where procurement fraud is the biggest concern.
“Of the 31 percent of EU&R companies experiencing crimes, nearly half reported procurement fraud,” the PwC report said. “With a smaller digital footprint and fewer customer interactions than many other sectors, it makes sense that this industry’s fraud profile would be different from that of other sectors. Nonetheless, recent events have shown that cyberattacks against infrastructure could pose a looming threat in the near future.”
Fraud rates increased significantly during COVID-19
The economic downturn and social instability can create a fertile ground for fraud and financial crimes. This was seen during COVID-19. PwC report found that 70 percent of those encountering fraud experienced new incidents during the pandemic.
Remote work lowered the risks of asset misappropriation but increased digital security issues. Blackmailing or physically attacking employees has emerged as a new concern as companies allow access to corporate data from homes. The rate of organizations experiencing disinformation fraud in the past 24 months was 15 percent, suggesting companies need to increase their awareness of this emerging risk.
External threats more than internal threats
The PwC survey has also found a disturbing trend among fraud and economic crimes. External entities that can’t be easily controlled or influenced are becoming stronger and more effective now.
Almost 70 percent of companies experiencing fraud said that the most disruptive incident came from outside or through collusion between external and internal sources. The biggest problem is that external fraudsters are immune to traditional fraud prevention tools such as codes of conduct, training, and investigations, forcing companies to seek legal action.
Threats from hackers and organized crime have also risen significantly in the last two years. About one-third of external cases were from hackers, and 28 percent were by organized crime rings. Interestingly, European organizations are more vulnerable to external perpetrator incidents than any other region.
For long, the main focus of theft and fraud in businesses was internal. Retailers fretted about employees stealing products, bankers built numerous internal policies to ensure asset security, and almost everyone worried about internal leaks of sensitive data. These reports now show that companies may have to shift their focus to consider external threats as well.
New threats could become a bigger concern in the future
While concerns like cybercrime and consumer fraud could remain worrisome to businesses, new threats that are now not getting enough attention could become bigger problems in the future. PwC said that just 6 percent of organizations reported encountering anti-embargo fraud in the last 24 months. But this number could increase in the next 24 months as global sanctions rise to the highest levels in recent history.
Other emerging threats include environmental, social, and governance (ESG) reporting fraud and supply chain fraud. Currently, 8 percent of businesses reported ESG fraud, while one in eight companies experienced supply chain fraud. We may also see these numbers increasing in the coming years as sustainability becomes an essential global concept and supply chain woes continue to hurt international trade.