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Fraud, cyber, and security incidents are now the ‘new normal’ for companies across the world, according to the executives surveyed for the 2016/17 Kroll Annual Global Fraud and Risk Report. The proportion of executives that reported their companies fell victim to fraud in the past year rose significantly to 82 percent, from 75 percent in 2015 and 70 percent in 2013, highlighting the escalating threat to corporate reputation and regulatory compliance.

Cyber incidents were even more commonplace, with 85 percent of executives surveyed saying their company has suffered a cyber incident over the past 12 months. Over two-thirds (68 percent) reported the occurrence of at least one security incident over the course of the year.

The threat from within

Despite widespread concerns about external attacks, the findings reveal that 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 percent) who worked for companies that suffered from fraud identified a combination of perpetrators that included current employees, former employees, and third parties. Almost half (49 percent) said incidents involved all three groups. Junior staff were cited as key perpetrators in two-fifths (39 percent) of fraud cases, followed by senior or middle management (30 percent) and freelance or temporary employees (27 percent). Former employees were also identified as responsible for 27 percent of incidents reported. Overall, 44 percent of respondents reported that insiders were the primary perpetrators of a cyber incident, with former employees the most frequent source of risk (20 percent), compared to 14 percent citing freelance or temporary employees and 10 percent 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 percent.

Over half of respondents (56 percent) said insiders were the key perpetrators of security incidents, with former employees again the most common of these (23 percent).

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."

Increasingly complex threats

The vast array of perpetrators and ever-evolving nature of incidents reflect an increasingly complex risk management environment for businesses.

Every category of fraud has seen a marked increase between 2015 and 2016. The greatest increases were in the areas of market collusion (15 percent) and misappropriation of company funds (11 percent). Theft of physical assets remained the most prevalent kind of fraud suffered in the past year (reported by 29 percent of respondents), followed by vendor, supplier, or procurement fraud (26 percent).

The single most common type of incident reported was a virus or worm infestation, reported by one-third of all companies (33 percent), followed by an email-based phishing attack (26 percent).

In the age of big data, nearly a quarter (23 percent) of respondents said data breaches resulted in loss of customer or employee data, while 19 percent reported loss of IP, trade secrets, or R&D.  More than one in five (22 percent) suffered data deletion or corruption caused by malware or system issues, and 19 percent were victims of data deletion by a malicious insider.

Theft or loss of intellectual property was the most common type of security incident, cited by 38 percent of those who experienced a security incident in the last 12 months.

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 percent) of respondents said that a recent fraud had been discovered through a whistle-blowing program, and 39 percent said it had been detected through an internal audit.

Indeed, three in four respondents indicated that their companies (76 percent) have adopted employee-focused anti-fraud measures such as staff training or whistle-blowing hotlines. 82 percent of respondents have adopted anti-fraud measures focusing on information such as IT security or technical countermeasures, and 79 percent 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 percent of survey respondents' companies.

Read the full report (PDF).

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