Natural resources businesses saw high levels of fraud and risk incidents in 2016, with 80% of executives in the industry worldwide report experiencing a fraud incident last year, according to the 2016/17 Kroll Annual Global Fraud and Risk Report published today.

According to the report, 80% of executives surveyed worldwide from the natural resource sector experienced a fraud incident in the past year,  while 86% of executives reported at least one cyber incident and 70% reported security incidents

Cyber incidents were also commonplace in the sector, with 86% 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 virus or worm infestation, reported by one-third of all respondents (36%), followed by lost equipment with sensitive data (30%)

In the age of big data, more than one in five respondents (22%) also said their company had suffered data deletion or corruption caused by malware or system issues and 24% were victims of data deletion by a malicious insider.

More than two-thirds of respondents in the sector (70%) reported the occurrence of at least one security incident over the course of the year.

Tommy Helsby, Co-Chairman, Kroll Investigations & Disputes, commented:

“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 organizations need to have systemic processes in place to prevent, detect, and respond to these risks if they are to avoid reputational and financial damage.”

Construction, engineering, and infrastructure sector is success story

In contrast, this year’s survey shows the construction, engineering, and infrastructure industry as a success story. While 70% of respondents in the industry still reported being affected by fraud, this number was significantly under the global average and by far the lowest rate of any industry.

Construction, engineering, and infrastructure was also the only industry which saw a decrease in fraud from 2015 to 2016, with the percentage of respondents reporting an incident falling by 5 percentage points over the period.

Consistent with other industries, the most common perpetrators of fraud were junior employees, with participants reporting that they were a key perpetrator in 45% of instances. Ex-employees were responsible in a third of all cases.

Reflecting the threat from employees, the most widely adopted anti-fraud measures related to staff. These covered training, whistle-blower hotlines, and background screening for new recruits. Internal audits were the most common method of detection of fraud for these respondents.

When it came to cyber attacks, more than three-quarters of participants reported that their company had experienced an instance in the last 12 months. While below the global average, the instance of a cyber attack was still prevalent, with customer records the main target through virus or worm infestations, email-based phishing attacks, and data deletion or loss due to system issues.

More than half (63%) of respondents in the construction, engineering, and infrastructure industry had experienced a security risk in the past 12 months. Instances of environmental and geopolitical risk were higher than the global averages; however, theft and loss of intellectual property was less of a risk for these respondents than most, despite being reported as an area of vulnerability.

 Global results across all sectors

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 ten respondents (60%) 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%) involving all three groups. Junior staff were cited as key perpetrators in two-fifths (39%) of fraud cases, followed by senior or middle management (30%) and freelance or temporary employees (27%). Former employees were also identified as responsible for 27% of incidents reported. Other key findings include:

• Overall, 44% of respondents reported that insiders were the primary perpetrators of a cyber incident, with former employees the most frequent source of risk (20%), compared to 14% citing freelance or temporary employees and 10% 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%.
• Over half of respondents (56%) said insiders were the key perpetrators of security incidents, with former employees again the most common of these (23%).
• Over two-thirds (69%) 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%) because of security threats.

The road to resilience

While insiders are cited as the main perpetrators of fraud, they are also the most likely to discover it. Almost half (44%) of respondents said that a recent fraud had been discovered through a whistleblowing program, and 39% said it had been detected through an internal audit.

Three in four respondents indicated that their companies (76%) have adopted employee-focused anti-fraud measures such as staff training or whistleblowing hotlines. 82% of respondents have adopted anti-fraud measures focusing on information such as IT security or technical countermeasures, and 79% 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% of survey respondents’ companies.

A global leader in risk mitigation and response, with nearly 1000 employees Kroll’s  global client base which includes financial institutions, law firms, corporations, not-for-profit institutions and government.

Dan Karson, Co-Chairman, Kroll Investigations & Disputes, commented:

“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 organizations 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.”

Click here to download the Annual Global Fraud and Risk Report - building resilience in a volatile world