Recession Doesn’t Lead To More Fraud, Just Redistributes It Among Industries

According to a study by international consultancy Kroll, while overall occurrences of fraud affecting businesses have not increased since the global recession began, the industries impacted have changed. Eighty-five percent of companies surveyed reported financial losses due to fraud, averaging a loss of $8.8 million. The losses, however, have shifted between industries disparately impacted by the recession, as the following table shows.

Reported Fraud Increased Reported Fraud Decreased
Financial services Manufacturing
Professional services Natural resources
Travel, leisure, and transportation Consumer goods
Retail, wholesale, and distribution Technology, media, and telecoms
Healthcare, pharmaceuticals, and biotechnology Construction, engineering, and infrastructure
Adapted from Kroll Global Fraud Report 2009/10, ©2009 Kroll.

The shift between industries is not unexpected considering the recession, as both headcount and profit have declined in all industries that reported a less fraud, thereby reducing individuals’ opportunities to commit fraud. At the same time, those industries more-closely related to the economic downturn reported higher occurrences of fraud, according to Kroll’s survey. In the case of financial and professional services, layoffs have negatively impacted organizations’ internal control operations, meaning fewer people are working to prevent fraud. As for the travel and retail industries, theft of assets, be it equipment or inventory, led to reported increases primarily due to the ease with which these items can be stolen. Meanwhile, the healthcare industry is now more vulnerable to employees disclosing confidential information, as well as failing to comply with regulatory guidelines, resulting in more instances of fraud.

For more analysis and to access the complete Kroll Global Fraud Report 2009/10, visit http://www.kroll.com/about/library/fraud/.