Since our first economic crime survey in 2001, three types of frauds have consistently been highlighted by our respondents — asset misappropriation (usually by a wide margin), bribery and corruption, and accounting fraud. We added cybercrime as a distinct classification in 2011.
This year, we added another new category, procurement fraud. We believe this category is primarily driven by two trends — more-competitive public tender processes from governments and state-owned businesses, and the increasing integration of supply chain into core business activities. Procurement fraud received a significant response (29%), making it the second most frequently reported type of fraud experienced.
In addition to procurement fraud, we added two other classifications in 2014 — human resources fraud and mortgage fraud. Respondents also included a wide range of crimes in the “Other” category, including insurance fraud, loan fraud and credit card fraud.
The chart below breaks down the types of economic crime reported by our respondents.
From an analytical point of view, it can be useful to distinguish between two different kinds of threats.
If asset misappropriation, for example, is akin to a pickpocketing or burglary (a specific episode of loss due to specific actions of a rogue employee), a serious violation of an anti-bribery statute such as the U.S. Foreign Corrupt Practices act (FCPA) or the UK Bribery Act — or having your organisation compromised by a money laundering scheme — is a more systemic assault on your company.
While economic crimes related to a specific episode certainly cause losses, systemic economic crimes have the greater impact. Not only can enforcement of these crimes lead to substantial fines and a black mark on your reputation, they can cause lasting damage. They erode the integrity of employees and exploit weaknesses in internal control structures in a company’s sales, marketing, distribution, compliance, supply chain, payments processing, government relationships, and accounting and financial reporting.