Manufacturing businesses report high levels of fraud, cyber, and security incidents during 2017

Fraud, cyber, and security risks continue to reach high levels in the manufacturing sector, according to senior corporate executives surveyed worldwide for the 2017/18 Kroll Annual Global Fraud & Risk Report.

The proportion of executives reporting that their companies fell victim to at least one instance of fraud over the past 12 months was 86 per cent, two percentage points higher than the global average across all industry sectors.

An even greater percentage of executives from the manufacturing sector (88 per cent) said their companies had experienced a cyber incident or information theft, loss, or attack over the past 12 months. Just over seven in 10 respondents (72 per cent) reported the occurrence of at least one security incident during the past year, two percentage points above the global average.

The Kroll Report reveals that respondents in the manufacturing sector are experiencing a heightened sense of vulnerability to fraud, cyber, and security risks, with information-related risks now being the area of greatest concern. As criminals and other threat actors continue to find new ways to monetise confidential data, including personal data, data assets are becoming increasingly valuable and attractive targets. 

Confidential information subject to increasing threats

Information theft, loss, or attack was again the most prevalent type of fraud experienced in the manufacturing sector, cited by 33 per cent of respondents, up three percentage points from the previous year. Corruption and bribery was second on the list, reported by 28 per cent of executives, more than twice the reported incidence in last year’s survey (12 per cent).

More respondents from the manufacturing sector (88 per cent) reported cyber incidents compared to the global figure of 86 per cent. In the year when major viruses such as WannaCry and Petya hit across the world, nearly four in 10 (38 per cent) executives surveyed said their companies had been impacted by a virus or worm attack. A quarter (26 per cent) said they had suffered an email-based phishing attack and the same proportion suffered a data breach.

Physical theft or loss of intellectual property (IP) was by far the most prevalent type of security incident. Of those executives in the manufacturing sector whose company experienced a security incident this past year, 45 per cent said their organisations fell victim to IP theft or loss.

Top three types of incidents reported by survey respondents (by category):

  Fraud Cyber Security
1 Information theft, loss, or attack (33 per cent) Virus/worm attack (38 per cent) Physical theft or loss of intellectual property (45 per cent)
2 Corruption and bribery (28 per cent) Data breach resulting in loss of customer or employee data, IP/trade secrets/R&D (26 per cent) Environmental risk (including damage caused by natural disasters such as hurricanes, tornadoes, floods, earthquakes, etc.) (24 per cent)
3 Management conflict of interest (26 per cent) Email-based phishing attack (26 per cent) Workplace violence (19 per cent)

Jason Smolanoff, senior managing director and Global Cyber Security Practice leader for Kroll, explained: “In a digitised world with growing levels of data creation, collection, and reliance for businesses, information assets have become increasingly valuable and exposed to threats. Exacerbating the challenge of safeguarding data is that criminals and other threat actors are continually developing new ways to monetise confidential information, including personal data.

“People instinctively think about data being targeted by cyber attacks, but not all threats to information are confined to the digital realm. There is a convergence between physical and digital threats, with issues arising from equipment with sensitive data being stolen or lost, for example, or employees with access to highly sensitive information accidentally or intentionally causing a breach.”

Costly and wide-ranging repercussions

In addition to reporting extremely high incidence levels, respondents from the manufacturing sector indicated that the repercussions of fraud, cyber, and security events were costly and wide-ranging, affecting employees, customers, as well as the organisation’s reputation and bottom line.

Employee privacy, safety, or morale was negatively affected by incidents according to 76 per cent of respondents whose companies had experienced fraud, 86 per cent of those that reported a cyber incident, and 76 per cent of executives whose companies endured a security event.

Approximately two thirds of respondents stated that customers had been negatively impacted by all three risk factors – 66 per cent by a fraud incident, 63 per cent by a cyber incident, and 59 per cent by a security incident. A similar proportion said that the impacted company’s reputation had suffered due to a fraud (66 per cent), cyber (68 per cent), or security (69 per cent) incident.

Businesses suffered significant economic damage from fraud, with nearly one in five respondents (18 per cent) reporting losses of seven per cent or more of company revenues. No respondents from the manufacturing sector reported this magnitude of financial impact in last year’s survey.

Executives feeling increasingly vulnerable to risks

The Kroll Report further reveals mounting concerns among surveyed executives about their companies’ potential exposure to fraud, cyber, and security risks. In particular, information-related risks overwhelmingly represent the top worries for respondents across all three risk categories.

More than six in 10 (62 per cent) respondents from the manufacturing sector believe their companies are highly or somewhat vulnerable to information theft, loss, or attack, five percentage points higher than the global average.

With reported cyber incidents at an all-time high and perpetrators seeming to develop new methods of attack virtually every day, at least half of all executives surveyed are apprehensive about every type of cyber incident identified in the survey – with 57 per cent especially wary of data deletion.

The proportion of respondents from the sector who said they feel highly or somewhat vulnerable to physical security threats was also substantial. More than half of respondents stated their companies could be particularly prone to physical theft or loss of IP, the greatest single concern.

Culprits inside and outside

Insiders and ex-employees continue to pose the greatest fraud threat to companies in the manufacturing sector. Respondents revealed that fraud incidents are often inside jobs perpetrated by one or more of the following: junior employees (42 per cent), ex-employees (34 per cent), or vendors/suppliers (30 per cent).

Random perpetrators were the main culprits of cyber (41 per cent) and security (31 per cent) incidents experienced by executives in the manufacturing sector.

Imperative to mitigate risks

Nearly all anti-fraud measures mentioned in the survey were widely adopted by over 70 per cent of respondents in the manufacturing sector, with financial controls the most widely implemented anti-fraud measure at 84 per cent.

Cyber security is rapidly becoming a board governance mandate as the anticipated likelihood of an incident grows, compounded by increasing regulatory pressures and the costly reputational risks associated with data privacy and data loss events. 49 per cent of respondents currently involve the board of directors in the formulation of cyber security policies and procedures, and another 39 per cent plan to do so in the next 12 months.

A large proportion of respondents have adopted security risk mitigation measures, but given the high incidence and feelings of vulnerability around theft/loss of IP, it was surprising to see that only 73 per cent of respondents have a plan for securing intellectual property. However, almost a quarter (21 per cent) of respondents plan to implement these measures over the next 12 months.

Kroll CEO David Fontaine commented: “Senior executives are becoming acutely aware that threats to their organisations can arise at any time and originate from any place. Insiders and ex-employees continue to pose a significant threat and have, together with external criminals and threat actors, more tools at their disposal than ever before with which to target and exploit companies.

“In the face of these mounting threats, organisations seeking to manage and mitigate the possibility of loss must take a holistic approach to enterprise risk management and implement diverse and layered measures that can enhance their ability to anticipate, detect, and respond to threats rooted not only in human error or intentional misconduct, but also in technological or internal control gaps.”

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