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Survey: Fraud poses serious risk to businesses

Fraud is a fact of life for retailers and other businesses.

Fraud and illicit business activity is rampant and costly.

According to new Global Fraud and Risk Report from security company Kroll, 82% of over 1,300 surveyed senior decision-makers for risk strategy said their organizations had been significantly impacted by fraud and illicit activity. Seventy-eight percent of respondents’ organizations had conducted investigations into fraud, corruption or related misconduct in the past three years.

In addition, four in five (79%) respondents said the cost of these investigations had increased, particularly for organizations with revenue of more than $15 billion. In response to the high reported rates of serious misconduct, more than three-quarters (78%) of surveyed organizations stated they had conducted internal investigations over the past three years.

Looking specifically at retail, wholesale and distribution respondents, the survey found that 81% had been significantly impacted by serious misconduct and 69% had conducted an internal investigation in the last three years.

Almost all surveyed organizations (98%) that had conducted an internal investigation recruited the help of external firms to assist, with the most called-upon advisors being computer forensics/e-discovery firms (55%), followed by investigations firms (47%).

Despite advancements in technology and data analytics, nearly four in five (79%) respondents said the cost of investigations had increased over the past three years. Organizations with the highest revenue found themselves the most susceptible to rising costs. Nearly half (49%) of organizations surveyed with a revenue of more than $15 billion felt the cost of internal investigations had “increased significantly,” almost double that of the global average (26%).

Online shopping fraud is on the rise
In an issue specifically affecting retailers, reports of online shopping fraud more than doubled in 2020, and for the first half of 2021 fraud numbers continued to be far higher than pre-pandemic levels, according to a recent study by fraud management platform Riskified. Cosmetics ranked highest in fraud levels, with a 47% increase in fraud attempts. The sneakers category saw an 8% increase in fraud attempts, and digital services and children’s items rounded out the list, with a 12% and 15% increase in fraud attempts from 2020, respectively.

“The exponential growth of electronic information within organizations means that when an internal investigation kicks in, finding facts across large, disparate data sets can be a monumental task, causing inefficiencies and delays,” said Andy Gandhi, managing director and global leader, data insights and forensics, Kroll. This can be solved by developing an understanding of the key data within the organization, designing a robust data governance framework to proactively classify and index data, and applying technologies such as artificial intelligence and machine learning to enhance processes. The data and insights can then be used to make strategic decisions and respond to regulatory requirements. The downstream investigation process also becomes far more efficient, saving time and cost.”

For the Global Fraud and Risk Report 2021/22 edition, Kroll conducted an anonymous online survey of over 1,330 senior decision-makers for risk strategy, including CEOs, general counsels, chief compliance officers and chief financial officers. Sixty percent of the organizations surveyed have annual revenues of $250 million or more, and 34% have annual revenues of more than $1 billion. Survey respondents were drawn from 17 countries and regions across Europe, North America, Middle East, sub-Saharan Africa, and Asia Pacific.

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