Incidence Of Cybertheft Surpasses Incidence Of Physical Theft For The First Time, Study Says

Incidence of theft of information and electronic data at global companies has overtaken physical theft for the first time, according to a study released yesterday.

According to the latest edition of the Kroll Annual Global Fraud Report, the amount lost by businesses to fraud rose from $1.4 million to $1.7 million per $1 billion of sales in the past 12 months -- an increase of more than 20 percent.

The findings are the result of a study commissioned by Kroll and conducted by the Economist Intelligence Unit, which surveyed more than 800 senior executives worldwide.

While physical theft of cash, assets, and inventory has been the most widespread fraud by a considerable margin in previous Global Fraud Reports, this year's findings reveal that theft of information or assets was reported by 27.3 percent of companies during the past 12 months -- up from 18 percent in 2009. In contrast, reported incidences of theft of physical assets or stock declined slightly, from 28 percent in 2009 to 27.2 percent in 2010.

According to the 2010 survey, 88 percent of companies said they had been the victim of at least one type of fraud during the past year. Of the specific countries analyzed, China is the top market in which companies suffered fraud -- 98 percent of businesses operating there said they have been affected. Colombia ranked second with a 94 percent incidence of fraud in 2010, followed by Brazil with 90 percent.

"Theft of confidential information is on the rise because data is increasingly portable, and perpetrators -- often departing or disgruntled employees -- can remove it with ease absent sufficient controls," says Robert Brenner, vice president of Kroll's Americas region. "At the same time, there is a growing awareness among thieves of the increasing intrinsic value of an organization's intellectual property.

"The results of the survey do not suggest that other types of fraud are decreasing, but merely that the rise in theft of intellectual capital has outstripped other fraudulent activity that has remained constant. Companies need to regularly evaluate how they are controlling access to information."

Information-based industries reported the highest incidence of theft of information and electronic data during the past 12 months, according to the study. These include financial services (42 percent in 2010 vs. 24 percent in 2009), professional services (40 percent in 2010 vs. 27 percent in 2009), and technology, media and telecom (37 percent in 2010 vs. 29 percent in 2009).

The speed of technological developments poses new challenges in the fight against fraud, according to survey respondents. Nearly one-third (28 percent) of respondents cited information infrastructure complexity as the single most important factor in raising their exposure to fraud. However, despite the increased risks, only 48 percent of companies are planning to spend more on information security in the next 12 months, down from 51 percent last year.

Fear of fraud dissuades nearly half of the companies surveyed from becoming more global, according to the study. Forty-eight percent of respondents indicated that fraud had dissuaded them from pursuing business opportunities in at least one foreign country. The biggest impact has been on emerging economies, with fraud deterring 11 percent of businesses operating in China, 11 percent in Africa, and 10 percent in Latin America. Respondents said they managed risk in these countries simply by avoiding the regions, even though they might offer attractive investment opportunities.

Increased regulation through the Foreign Corrupt Practices Act (FCPA) and the introduction of the U.K.'s new Bribery Act has created new challenges for companies, the study said. According to the survey, nearly two-thirds (63 percent) of businesses with operations in the U.S. or U.K. believe the laws do not apply to them or are unsure.

As a result, many companies are unprepared to deal with the regulatory risks of fraud: Less than half (47 percent) are confident they have the controls in place to prevent bribery at all levels of the operation, compared with 42 percent who said they have assessed the risks and put in place the necessary monitoring and reporting procedures, according to the study. For those companies that have been affected by fraud during the past year, junior employees and senior management were the most likely perpetrators at 22 percent each, followed by agents or other intermediaries at 11 percent, according to Kroll. The proportion of fraud carried out by these employees ranged from 50 percent to 60 percent in North America, Europe, and Asia-Pacific to 71 percent in the Middle East and Africa.

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