New fraud report: Information theft is Asia's biggest fear

A major survey of global executives has found that physical theft (41%) is the most common problem for companies in Asia, followed by information theft (31%) and regulatory or compliance breaches (28%).

Globally, the average company loss to fraud has increased by 22%, largely driven by the credit crunch and tough economic climate. Companies lost an average of $8.2 million to fraud in the past three years, compared to last year's $7.6 million.

The trends and figures are from a survey that risk consulting company Kroll commissioned from The Economist Intelligence Unit of 890 senior executives worldwide. Thirty percent of the respondents were based in the Asia-pacific, one-third in North and South America, slightly more than a quarter in Europe and 11% in the Middle East and Africa.

More than four out of five companies surveyed (85%) have suffered from corporate fraud in the past three years, up from 80% in last year's survey. For larger companies the proportion suffering from fraud rose to 90%.

Construction and natural resources sectors hit

The survey found that the construction and natural resources sectors suffered the most incidents of fraud, due partly to high oil prices and an industry shift to higher-risk areas.

Healthcare, pharmaceuticals and biotechnology saw an increase in problems with corruption and theft of stocks or assets, while travel, leisure and transportation reported increases in regulatory and compliance breaches and information theft or loss.

The most common type of fraud amongst financial services firms is breach of regulatory

compliance, a growing problem which, the report said, "receives too little attention". Compliance breaches continue to plague this highly regulated industry with 44% of financial service firms in Asia affected by such fraud in the past three years.

Respondents in Asia feel most vulnerable to the threat of information theft (71%) followed by regulatory or compliances breaches (58%) and vendor, supplier or procurement fraud (56%).

Fraud expected to increase

Anne Tiedemann, regional managing director for Kroll's operations in Asia, said that the findings showed that fraud was not only widespread, but also growing.

"We expect to see this increase further as conditions become tougher for business and the full impact of the credit crunch unfolds, " Tiedemann said ."When you look into the causes of fraud, companies that cited high staff turnover or weak internal controls suffered much higher levels of fraud - in almost every case increasing their exposure by one-and-a-half times. Companies need to look carefully at how they can address these issues to reduce their risk to fraud and improve their business operations."

Sharon McCarthy, Kroll's associate managing director in Hong Kong, said Asia as the manufacturing hub of the world and procurement fraud was unfortunately a common problem.

"Procurement personnel in Asia operate independently, are responsible for spending large amounts of money and are usually responsible for inventory safekeeping," McCarthy said. "There is a large amount of trust placed upon them and the opportunity to make some extra money by illegal means is often too much of a temptation."