While fraud prevalence in China is higher than the global average, the perceived impact of fraud on business operations in the country has seen a significant drop— with only 11% of executives are dissuaded from operating business in China, according to the recently released Kroll Annual Global Fraud and Risk Report.
The percentage was 25% in 2016, said Kroll which also revealed that 86% of respondents in China experienced fraud incidents in the past 12 months, two percentage points above the global average of 84%.
The report, said Kroll, is based on a survey of 540 senior executives across multiple industries worldwide.
The most common fraud types in China
The most common types of fraud experienced were vendor, supplier, and procurement fraud (29%) as well as corruption and bribery (29%), significantly higher than the global averages of 20% and 21% respectively.
The sweeping anti-corruption campaign in China, as well as fraud prevention measures adopted by companies such as financial controls (82%), internal whistleblower hotline (81%) and asset protection (80%), contributed to the survey executives’ higher level of confidence operating businesses in China, said Violet Ho, Senior Managing Director, Head of Kroll’s Greater China Investigations and Dispute practice.
“However, it’s worth noting that the fraud prevalence in China is still above global average (84%) and it takes long-term, consistent efforts to eventually achieve effective fraud prevention,” Ho commented.
Lacking employee due diligence
While China respondents have allocated above global average resources on these anti-fraud measures, one of the missing links in fraud prevention is employee due diligence and ongoing monitoring, she pointed out.
It is very common for frauds in China to include collusions between company insiders and vendors/suppliers, making fraud more difficult to detect and fraud losses more significant, Ho observed.
“Know your employees” is a critical element of a comprehensive fraud prevention framework and a lot more work in this area is needed,” she advised.
Beside fraud incidents, 75% of respondents in China were affected by security incidents in the past year, five percentage points higher than the global average of 70%, according to the report.
Physical theft or loss of intellectual property was ranked top when asking about the most common type of security incident experienced by the respondents in China, the report adds.
It is worth noting that only 9% viewed security as an imminent risk to operate business in China in 2017, substantially down from 21% in 2016, Ho said.
Apart from fraud and security incidents, 88% of respondents said their companies had experienced a cyber incident or information theft, loss, or attack in 2017, two percentage points higher than the global average and representing two percentage points of increase from the preceding year.
Across the globe, the proportion of executives reporting that their companies fell victim to at least one instance of fraud over the past 12 months increased to 84%, from 82% in the previous survey.
Levels of reported fraud have steadily risen every year since 2012, when the reported occurrence was just 61%.