Fraud drops for manufacturers but further diligence is advised

Posted on 19 Oct 2009 by The Manufacturer

Individual manufacturing firms are now losing less money to fraud than they were a year ago and are losing less than companies from other sectors, according to the Annual Global Fraud Report for 2009/10 from corporate consultants Kroll.

Kroll’s survey of firms from all aound the world found manufacturing companies are losing an average of US$7.4 million over three years, down 13 per cent on last year’s figure which stood at US$8.5 million. Manufacturing companies registered a below-average loss compared to other sectors, with the financial services industry being hit hardest by fraud over the past 12 months.

When all types of company are factored in, firms are losing an average US$8.8 million to fraud over the past three years, up seven per cent on 2008’s figure of US$8.2 million.

Sectors in which fraud levels went up this year include financial services; retail, wholesale & distribution; and healthcare. Media & telecoms and consumer goods & construction joined manufacturing in witnessing a fall.

But though fraud is down overall for manufacturers, losses through financial mismanagement are up and IP theft remains high. Thirty per cent of manufacturers suffered from financial mismanagement – the highest of any sector and well up from 17 per cent last year. The industry also saw the highest level of IP theft over the last three years at 22 per cent. (22 per cent),

Richard Abbey is managing director in Kroll’s Financial Investigations practice. He said: “Any crime needs both a motive and an opportunity. The economic downturn has provided increased motive for fraud – perhaps turning previously honest employees to crime in light of lower financial rewards or pressure to meet financial targets. However, at the same time, the decline in liquidity has also reduced the opportunity for the determined fraudster.”

“Our report highlights how motive and opportunity for committing crime have effectively cancelled one another out in the past year, but this apparent steady rate of fraud may be a false dawn. As we emerge from recession, both businesses and investors should be extra vigilant as we are likely to witness a different set of motivations, with the corporate saviour replaced, once again, by the activities of sophisticated criminals starved of opportunity in recent times.”

Overall, 30 per cent of companies reported the current economic climate had directly increased their exposure to fraud over the past 12 months, with only five per cent reporting a decline.

Companies with annual sales of over US$5bn reported disproportionately larger fraud than companies with sales of under %5bn. The Middle East and Africa are the areas hit worst by fraud.

For a copy of the report see