Manufacturing businesses report high levels of fraud, cyber and security incidents in 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%, two percentage points higher than the global average across all industry sectors (84%).

An even greater percentage of executives from the manufacturing sector (88%) 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%) 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 monetize 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% of respondents, up 3 percentage points from the previous year. Corruption and bribery was second on the list, reported by 28% of executives, more than twice the reported incidence in last year's survey (12%).

More respondents from the manufacturing sector (88%) reported cyber incidents compared to the global figure of 86%. In the year when major viruses such as WannaCry and Petya hit across the world, nearly four in 10 (38%) executives surveyed said their companies had been impacted by a virus or worm attack. A quarter (26%) 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% said their organizations 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%) Virus/worm attack (38%) Physical theft or loss of intellectual property (45%)
2. Corruption and bribery (28%) Data breach resulting in loss of customer or employee data, IP/trade secrets/R&D (26%) Environmental risk (including damage caused by natural disasters such as hurricanes, tornadoes, floods, earthquakes, etc.) (24%)
3. Management conflict of interest (26%) Email-based phishing attack (26%) Workplace violence (19%)

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% of respondents whose companies had experienced fraud, 86% of those that reported a cyber incident, and 76% 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% by a fraud incident, 63% by a cyber incident, and 59% by a security incident. A similar proportion said that the impacted company’s reputation had suffered due to a fraud (66%), cyber (68%), or security (69%) incident.
Businesses suffered significant economic damage from fraud, with nearly one in five respondents (18%) reporting losses of 7% 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%) respondents from the manufacturing sector believe their companies are highly or somewhat vulnerable to information theft, loss, or attack, 5 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% 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 (53%) 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%), ex-employees (34%), or vendors/suppliers (30).
Random perpetrators were the main culprits of cyber (41%) and security (31%) 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% of respondents in the manufacturing sector, with financial controls the most widely implemented anti-fraud measure at 84%.
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% of respondents currently involve the board of directors in the formulation of cyber security policies and procedures, and another 39% 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% of respondents have a plan for securing intellectual property. However, almost a quarter (21%) 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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