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Construction, Engineering & Infrastructure Fraud Report

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Construction, Engineering & Infrastructure Fraud Report

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70% of executives surveyed worldwide from the construction, engineering and infrastructure sector experienced a fraud incident in the past year, according to the Kroll Annual Global Fraud and Risk Report.
77% of executives reported at least one cyber incident and 63% reported security incidents.
Fraud, cyber, and security incidents are now the “new normal” for construction, engineering and infrastructure companies across the world, according to the executives surveyed in the 2016/17 Kroll Annual Global Fraud and Risk Report1.
Seven in ten (70%) executives in the sector reported that their company fell victim to fraud in the past year, highlighting the serious threat to corporate reputation and regulatory compliance.
Vendor, supplier or procurement fraud is the most prevalent kind of fraud suffered in the sector, reported by 28% of respondents. This is followed by internal financial fraud (21%), corruption and bribery, the theft of physical assets and misappropriation of company funds (all 19%).
Different types of fraud suffered in the construction, engineering and infrastructure sector

Type of fraud Percentage of respondents in this sector reporting this in 2016, globally
Theft of physical assets 19%
Vendor, supplier or procurement fraud 28%
Information theft 18%
Management conflict of interest 14%
Regulatory or compliance breach 18%
Internal financial fraud 21%
Misappropriation of company funds 19%
Market collusion 16%
Intellectual Property (IP) theft 7%
Corruption and bribery 19%
Money laundering 11%

 
Cyber incidents were also common-place in the sector, with 77% of executives surveyed saying their company has suffered a cyber incident over the past 12 months.  The single most common type of incident reported was a virus or worm infestation, reported by one-third of all respondents (35%), followed by an email-based phishing attack (30%).
In the age of big data, more than one in five respondents (19%) said their company had suffered data deletion or corruption caused by malware or system issues and 11% were victims of data deletion by a malicious insider.
Around two-thirds of respondents in the sector (63%) reported the occurrence of at least one security incident over the course of the year.
Tommy Helsby, Co-Chairman, Kroll Investigations & Disputes, commented: “This year’s Kroll Global Fraud and Risk Report shows that it’s becoming an increasingly risky world, with the largest ever proportion of companies reporting fraud and similarly high levels of cyber and security breaches. The impact of such incidents is significant, with punitive effects on company revenues, business continuity, corporate reputation, customer satisfaction, and employee morale.”
“With fraud, cyber, and security incidents becoming the new normal for companies all over the world, it’s clear that organizations need to have systemic processes in place to prevent, detect, and respond to these risks if they are to avoid reputational and financial damage.”
Global results across all sectors
Despite widespread concerns about external attacks, the findings reveal that across all sectors, the most common perpetrators of fraud, cyber, and security incidents over the past 12 months were current and former employees.
Six out of ten respondents (60%) at companies that had suffered from fraud identified a combination of perpetrators that included current employees, former employees, and third parties, with almost half (49%) involving all three groups. Junior staff were cited as key perpetrators in two-fifths (39%) of fraud cases, followed by senior or middle management (30%) and freelance or temporary employees (27%). Former employees were also identified as responsible for 27% of incidents reported.
Overall, 44% of respondents reported that insiders were the primary perpetrators of a cyber incident, with former employees the most frequent source of risk (20%), compared to 14% citing freelance or temporary employees and 10% citing permanent employees.
Adding agents or intermediaries to this “insider” group as quasi-employees increases the proportion of executives indicating insiders as the primary perpetrators to a majority, 57%.
Over half of respondents (56%) said insiders were the key perpetrators of security incidents, with former employees again the most common of these (23%).
Fraud and security concerns impact overseas expansion
Over two-thirds (69%) of executives say their companies have been dissuaded from operating in a particular country or region due to fraud concerns and just under two-thirds (63%) because of security threats.
The road to resilience
While insiders are cited as the main perpetrators of fraud, they are also the most likely to discover it. Almost half (44%) of respondents said that a recent fraud had been discovered through a whistleblowing program, and 39% said it had been detected through an internal audit.
Indeed, three in four respondents indicated that their companies (76%) have adopted employee-focused anti-fraud measures such as staff training or whistleblowing hotlines. 82% of respondents have adopted anti-fraud measures focusing on information such as IT security or technical countermeasures, and 79% have implemented physical security measures.
The most commonly reported cyber risk mitigation action was conducting in-house security assessments of data and IT infrastructure, implemented by 76% of survey respondents’ companies.
Dan Karson, Co-Chairman, Kroll Investigations & Disputes, commented: “Companies’ greater use of technology and their increasing reliance on international supply chains means they are more at risk from fraud than ever before. In our experience, this risk can be mitigated against by adopting a conscious and proactive approach. Many of the challenges organizations face could be reduced through the implementation of employee and partner education programs or a tighter set of policies that help remove avoidable errors and poor business practices.”
1 The Kroll Annual Global Fraud and Risk Report 2016/17 includes a full detailed industry analysis across a range of fraud categories and regions. To obtain a copy please visit https://www.kroll.com/en-us/intelligence-center/press-releases/building-resilience-in-a-volatile-world.
 

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