Accounting fraud, bribery and corruption on the rise; cybercrime moves to the forefront of U.S. companies' concerns
More than half of U.S. organizations that experienced fraud in the last two years reported an increase in the number of occurrences, according to the Global Economic Crime Survey 2014 released today by PwC US, representing a continuing upward trend in the occurrence and detection of economic crime. Forty-five percent of organizations in the U.S. suffered from some type of fraud in the past two years, more than the global average of 37 percent.
U.S. companies are growing their international operations, and the expanding role of the internet and mobile technology in business can bring risk from beyond their geographic footprint. The survey revealed that 54 percent of U.S. respondents reported their companies experienced fraud in excess of $100,000 with eight percent reporting fraud in excess of $5 million.
"Economic crime has become a truly borderless threat," said Steven Skalak, partner in PwC's Forensic Services practice and lead editor of the global survey. "The reality of fraud is that it can impact a company's revenues as directly as other business and market forces. The risk of bribery and corruption grows as U.S. organizations increasingly operate in and pursue opportunities in high-risk markets."
Significant Uptick in Cybercrime
Companies are beginning to change how they think about cybersecurity - viewing it as a business issue, not just an IT issue. Forty-four percent of U.S. organizations that experienced fraud in the past 24 months suffered from cybercrime; and 44 percent of all U.S. respondents indicated they thought it was likely their organization would suffer from cybercrime within the next 24 months.
Seventy-one percent of U.S. respondents indicated their perception of the risks of cybercrime increased over the past 24 months, rising 10 percent from 2011. U.S. respondents' perception of the risks of cybercrime exceeded the global average by 23 percent. Despite having more to lose, U.S. respondents were generally less aware of the cost of cybercrime: 42 percent of U.S. respondents were unaware of cybercrime's cost to their organizations, compared to 33 percent of global respondents.
Didier Lavion, PwC principal and lead author of the U.S. report, said, "U.S. corporations need to better leverage and implement the computational and analytical power of cybersecurity technologies to help combat the increasing global presence of cybercrime."
Who is Committing Fraud?
As organizations rely more on technology, they increasingly do business in a "borderless economy" where they are more susceptible to threats from all sides. The results are clear - while companies certainly should not lose sight of the internal perpetrator of fraud, they need to remain wary of the external perpetrator.
The external perpetrator of fraud is closing the gap on the internal perpetrator of fraud, with U.S. organizations reporting that economic crime is committed by external actors (44 percent of the time) almost as often as it's committed by internal actors (50 percent of the time).
According to PwC, most internal frauds are now perpetrated by middle management: 54 percent of internal frauds were committed by middle management, compared to 45 percent in 2011.
Both U.S. and global respondents most frequently identified internal fraudsters as male (77 percent U.S., 77 percent global), 31 to 40 years old (39 percent U.S., 40 percent global), employed between three and five years (27 percent U.S., 29 percent global) and college graduates (35 percent U.S., 35 percent global).
Fraud at U.S. organizations initially detected by external measures or by accident in 2014 more than doubled from 2011 levels: 32 percent in 2014 compared to 15 percent in 2011, and was initially detected through external tip-offs more often than any other method. Fraud initially detected by suspicious transaction reporting plummeted by 19 percent, at 11 percent in 2014 vs. 30 percent in 2011. Eighty-six percent of U.S. organizations have a whistleblower mechanism, according to the report, compared to only 62 percent of global organizations.
Other Notable Findings
Two types of fraud - accounting fraud, and bribery and corruption - increased in 2014. Accounting fraud increased to 23% in 2014, as compared to 16% in 2011. Bribery and corruption, at 14 percent in 2014, doubled from 2011 levels (7 percent).
For the first time, PwC specifically asked respondents about procurement fraud. The results were stark - more than 1/4 of U.S. respondents reported suffering from procurement fraud (27 percent), thus immediately placing it as the third most frequent type of fraud experienced by U.S. organizations. According to the report, this reflects the increasing interconnectedness of companies and ongoing trend toward outsourcing more aspects of their businesses.
"With more opportunities come more risks; no longer can organizations focus their fraud prevention and detection strategies on only a few types of fraud, a certain profile of fraudster, or certain perceived threats. They must be prepared to cast a wider net, for the threats associated with fraud are growing," concluded Lavion.
The 2014 Global Economic Crime Survey was completed by 5,128 respondents from 95 countries between August and October 2013. Of the respondents, 50% were senior executives, 35% represented publicly listed companies, and 54% were from organizations with more than 1,000 employees. There were 115 U.S. respondents; of these, 36% were senior executives, 53% represented publicly listed companies and 76% were from organizations with more than 1,000 employees.