Fraud, cyber and security incidents are now the “new normal” for financial services companies across the world, according to the executives surveyed in the 2016/17 Kroll Annual Global Fraud and Risk Report.
Nearly nine in 10 (89 per cent) executives in the sector reported that their company fell victim to fraud in the past year, highlighting the serious threat to corporate reputation and regulatory compliance.
Theft of physical assets is the most prevalent kind of fraud suffered in the sector, reported by 39 per cent of respondents. This is followed by vendor, supplier or procurement fraud (32 per cent).
Cyber incidents were also common-place in the sector; with 89 per cent of executives surveyed saying their company has suffered a cyber incident over the past 12 months. The single most common type of incident reported was a data deletion or loss due to systems issues, reported by nearly one-third of all respondents (30 per cent), followed by an email-based phishing attack and a virus or worm infestation (27 per cent each).
In the age of big data, nearly a quarter (25 per cent) were victims of data deletion by a malicious insider.
Around six in 10 respondents in the sector (57 per cent) reported the occurrence of at least one security incident over the course of the year.
Tommy Helsby, co-chairman, Kroll Investigations & Disputes, says: “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 organisations need to have systemic processes in place to prevent, detect, and respond to these risks if they are to avoid reputational and financial damage.”
Despite widespread concerns about external attacks, the findings reveal that across all sectors, the most common perpetrators of fraud, cyber, and security incidents over the past 12 months were current and former employees.
Six out of 10 respondents (60 per cent) at companies that had suffered from fraud identified a combination of perpetrators that included current employees, former employees, and third parties, with almost half (49 per cent) involving all three groups. Junior staff were cited as key perpetrators in two-fifths (39 per cent) of fraud cases, followed by senior or middle management (30 per cent) and freelance or temporary employees (27 per cent). Former employees were also identified as responsible for 27 per cent of incidents reported.
Overall, 44 per cent of respondents reported that insiders were the primary perpetrators of a cyber incident, with former employees the most frequent source of risk (20 per cent), compared to 14 per cent citing freelance or temporary employees and 10 per cent 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 per cent.
Over half of respondents (56 per cent) said insiders were the key perpetrators of security incidents, with former employees again the most common of these (23 per cent).
Over two-thirds (69 per cent) 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 per cent) because of security threats.
While insiders are cited as the main perpetrators of fraud, they are also the most likely to discover it. Almost half (44 per cent) of respondents said that a recent fraud had been discovered through a whistleblowing programme, and 39 per cent said it had been detected through an internal audit.
Three in four respondents indicated that their companies (76 per cent) have adopted employee-focused anti-fraud measures such as staff training or whistleblowing hotlines. Around 82 per cent of respondents have adopted anti-fraud measures focusing on information such as IT security or technical countermeasures, and 79 per cent 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 per cent of survey respondents’ companies.
Dan Karson, co-chairman, Kroll Investigations & Disputes, says: “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 organisations 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.”
