A large number of companies in China have been impacted by at least one type of fraud in the last year, according to the latest edition of the Kroll Annual Global Fraud Report. Brazil was in the top spot in 2009 but it has now been overtaken by China as per the study that surveyed more than 800 senior executives all across the globe.
The findings of the report show that 89 per cent of organisations in China had experienced fraud in 2009 while 92 per cent had the same problem during the period. The study, commissioned by Kroll with the Economist Intelligence Unit, indicates that the kinds of fraud experienced in China are more varied than any other market in the world.
According to the report, nine of the 11 frauds affected at least one out of five companies and respondents blame high staff turnover (34 per cent) and weak internal controls (34 per cent) to have increased their exposure to fraud.
Southeast Asia too has several significant fraud issues and about 90 per cent of respondents in this region reported fraud in 2009. Respondents from this region experienced one of the highest rates of theft of physical assets or stock and also are challenged by above average levels of management conflict of interest.
Asia is characterised by a large number of family-run businesses and Tadashi Kageyama, senior managing director, Kroll Hong Kong, says that for this reason, management conflict of interest is a significant challenge in the region.
Successful entrepreneurs in this region do not depend on only one business and typically has a number of similar or complementary businesses which may be in his name, the names of nominees or his family members. Kageyama added that if an organisation wants to do business in emerging Asia, it should be aware of them and ensure there are no conflicts.
Fighting fraud seems to be on the agenda on companies in China as the number of those intending to put money into staff training (54 per cent) and staff background checks (42 per cent) has risen noticeably from 2009.
"We are seeing an increasing amount of sophisticated and complex fraud schemes in China, which can cause much more financial, legal and reputational damage than the isolated kickback and bribery incidents common in the past," said Violet Ho, managing director for Kroll in China. "Motivated by greed, today's schemes involve numerous departments, vendors, offshore entities and have the potential to go undetected for years. Kroll has seen companies lose millions of US dollars in China to such situations because they failed to recognise the warning signs."