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Asian economy threatened by new fraud risks, says Kroll

Anuradha Shukla | Oct. 21, 2009
Financial loss due to fraud reduced over the last three years

SINGAPORE, 21 OCTOBER 2009 - Risk consulting company, Kroll says the ongoing economic downturn has changed the effects of the risks underlying fraud.

Newspapers last year carried stories of huge scams such as the Madoff, Satyam frauds and other cases of insider trading in Hong Kong and China. The situation has changed because of the financial crisis according to Kroll's Annual Global Fraud Report. The company commissioned the Economist Intelligence Unit to survey more than 700 senior executives worldwide covering over 10 industries.

Rise of a much more complex picture

The average financial loss per company in Asia, as a result of fraud over the last three years significantly reduced from US$9.1 million in 2008 to US$6.2 million in 2009. Apparently, the cases of fraud came down with a plummeting economy. Cash-strapped companies offered limited opportunities for crime.

Traditionally every downturn brings about a rise in fraud, but what we are seeing in 2009 is something far more varied. The economic crisis is driving significant changes in business behaviour which are increasing certain fraud risks and diminishing others, said Tadashi Kageyama, senior managing director and head of investigations for Kroll, Asia. As companies within Asia look to hire again, and expand into new and riskier markets, this presents a different set of red flags companies need to be mindful of.

Need for fraud protection

China recognises that protecting companies from fraud is important for its economic development. The survey indicates that 96 per cent of companies in Greater China experienced at least one type of fraud in the last three years. A large number of companies are vulnerable to theft of physical assets, information and procurement fraud.

Kroll has noted an increase in requests for IP investigations and due diligence on outbound merger and acquisition deals from domestic Chinese companies. Enterprises in China are also struggling with issues related to staff turnover and this factor may contribute to an increase in fraud cases.

The companies across Asia are definitely experiencing a decrease in corruption but the survey shows that the proportion considering themselves highly vulnerable rose 10 per cent to 15 per cent. Kroll said the large amount of stimulus spending across the region may be one of the reasons for this increased vulnerability.

About 37 per cent of the respondents in Greater China noted their company's exposure to fraud has increased due to complexity of IT infrastructure and entry into new riskier markets. Companies are ready to combat this situation and 52 per cent of the respondents in Greater China said they intend to invest in IT security. Seventy per cent of the surveyed companies are establishing financial measures such as financial controls, internal audit, external audit and money laundering polices.


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