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Two thirds of PSFs hit by fraud

Sector has highest level of management conflicts of interests, survey finds  

23 October 2013

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By Manju Manglani, Editor (@ManjuManglani)

Two thirds of professional service firms experienced fraud in the past year, according to an annual global survey of more than 900 senior executives across a range of industries.

It found that the level of fraud in PSFs declined from 68 per cent to 65 per cent year-on-year, while most other sectors reported increases in fraud.

However, nearly three quarters (73 per cent) of PSFs reported increased exposure to fraud. The most widespread factor leading to greater fraud exposure was IT complexity (34 per cent).

Frequent losses were incurred by management conflicts of interest, data theft or hacking, and theft of physical assets or stock.

“Perpetrators of fraud are often thought of as faceless hackers in a distant land but our experience shows that to be the exception rather than the rule; the greatest vulnerability is to those who have already got past most of your defences by virtue of being an employee, partner or contractor,” said Tommy Helsby, Eurasia chair at Kroll Advisory Solutions, which commissioned the survey.

“It is vital that, as well as investing in technology, businesses mitigate the insider threat by focusing on areas like staff screening and due diligence on partners, clients and vendors.”

Among all the industries covered, PSFs recorded the lowest level of theft of physical assets (15 per cent), vendor or procurement fraud (12 per cent), and internal financial fraud (6 per cent), as well as the second-lowest levels of information theft, loss or attack (14 per cent) and misappropriation of funds (5 per cent).

However, the survey found that PSFs have an above-average level of management conflicts of interests, at 22 per cent, compared with 20 per cent overall in other sectors. In addition, PSFs recorded the second-highest level of fraud by known perpetrators who are leading executives or partners, at 39 per cent.

On average, the financial impact of fraud in PSFs is equivalent to 1.4 per cent of revenues. According to the report, this suggests that the types of fraud that do occur tend to be more expensive, partly because of the frequency with which they involve senior or middle management.

The global survey received responses from 901 executives in industries including professional services, technology and manufacturing. Respondents were senior, with 53 per cent at C-suite level. Just under half of all respondents were from companies with annual revenues of more than $500m. The full findings are published in the 2013/2014 Global Fraud Report.

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