Company executives’ fear of fraud highest in China

PUBLISHED : Sunday, 29 November, 2015, 4:50pm
UPDATED : Sunday, 29 November, 2015, 4:50pm

Executives in China are more afraid of risks of fraud than anywhere else in the world, finds a survey conducted by commercial investigative firm Kroll.

Some 73 per cent of China-based executives in the Kroll annual survey said they were affected by fraud, marking a 6 per cent increase from last year. The annually held global survey interviewed 768 senior executives worldwide.

China ranks the most vulnerable in 9 out of 11 fraud types, with 87 per cent of Chinese executives saying they are vulnerable to theft of physical assets or stocks, much higher than the global average of 62 per cent.

Eighty-one per cent of Chinese executives worry about theft of their corporate information, compared with the global average of 51 per cent. Some 81 per cent of Chinese executives also worry their companies face the risk of corruption and bribery, compared with the global average of 40 per cent.

READ MORE: Hong Kong consultants in demand to uncover corporate fraud

The other risks that haunt Chinese executives are: cheating by their suppliers (74 per cent); having their intellectual property stolen (71 per cent); internal financial fraud (69 per cent); misappropriation of company funds (69 per cent), conflict of interest (65 per cent) regulatory compliance (65 per cent); market collusion (64 per cent); and money laundering (63 per cent). Comparable global average on these counts range between 26 and 49 per cent.

Derek Lai, a managing partner at Deloitte, said China is still an emerging market where the corporate governance culture is yet to mature.

“To prevent fraud, companies need to have very good internal controls and corporate governance culture. But most companies on the mainland are still focused on making money and developing their business, paying little attention to risk controls,” Lai said.

Patrick Rozario, managing director of advisory services at accounting and consulting network Moore Stephens, said China has many laws and regulations to prevent fraud. “However, there is a lack of enforcement of these regulations. As such, companies worry about fake goods from suppliers or being cheated by staff or partners,” Rozario said.

“To improve the situation, China would need to step up enforcement. It should also educate people about the importance of internal controls.”

Colum Bancroft, managing director of the Hong Kong office of Kroll, said that despite the high vulnerability figures, respondents in China are not investing in appropriate anti-fraud strategies.

Some 35 per cent of Chinese executives in the survey said they have invested in staff due diligence, a surprisingly low figure for a market where insiders account for 72 per cent of fraud cases.

Similarly,

only 53 per cent of Chinese executives said they have hired companies to do due diligence on their partners or vendors even though 74 per cent of them said they feel vulnerable to fraud by vendors and suppliers.

Globally, the survey showed three-quarters of companies have fallen victim to an incident of fraud in the past year, a rise of 14 percentage points in three years.

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