Cost of investigations and heightened fraud risk hit businesses hard

Risk specialist, Kroll has revealed the results of its latest Global Fraud and Risk Report, showing that organisations around the world are dealing with the rising costs associated with investigating allegations of serious misconduct.

The report, based on a survey of over 1,330 senior decision-makers for risk strategy, including CEOs, general counsels, chief compliance officers and chief financial officers, reveals that the vast majority (82%) of respondents said their organisations had been significantly impacted by fraud, corruption, illicit activity, money laundering or other serious misconduct.

In response to the high reported rates of serious misconduct, more than three-quarters (78%) of surveyed organisations stated they had conducted internal investigations over the past three years.

While the majority (90%) of respondents in the transport, leisure and tourism sector reported their organisation had been significantly impacted by serious misconduct, only 65% of organisations in this sector had conducted an internal investigation in the last three years. Of all sectors surveyed, only the extractives sector reported a lower incidence of internal investigations (64%), with 75% of respondents reporting significant impacts from serious misconduct.

Almost all organisations (98%) that had conducted an internal investigation recruited the help of external firms to assist, with the most called-upon advisors being computer forensics/eDiscovery firms (55%), followed by investigations firms (47%).

Despite advancements in technology and data analytics, nearly four in five (79%) respondents said the cost of investigations had increased over the past three years. Organisations with the highest turnover found themselves the most susceptible to rising costs, perhaps partly due to the growing complexity of global operations. Nearly half (49%) of organisations surveyed with a turnover of more than $15 billion (bn) felt the cost of internal investigations had “increased significantly,” almost double that of the global average (26%).

Kroll’s research also shows the extent to which organisations believe that some firms offering investigative services are failing to deliver true value. Document review and eDiscovery services were identified as being the most expensive relative to their value by 29% of respondents, followed closely by computer forensics (24%).

This suggests that some external providers are not leveraging the most up-to-date tools and technology to efficiently find relevant information – the “smoking gun” email or transaction or significant anomalies – in massive volumes of structured and unstructured data.

Andy Gandhi, Managing Director at, Kroll, said “The exponential growth of electronic information within organisations means that when an internal investigation kicks in, finding facts across large, disparate data sets can be a monumental task, causing inefficiencies and delays. This can be solved by developing an understanding of the key data within the organisation, designing a robust data governance framework to proactively classify and index data, and applying technologies such as artificial intelligence and machine learning to enhance processes. The data and insights can then be used to make strategic decisions and respond to regulatory requirements. The downstream investigation process also becomes far more efficient, saving time and cost.”

The sectors reporting the highest impact from fraud, corruption and illicit activity were:

Sector	Significantly impacted by serious misconduct	Conducted an internal investigation in the last three years
1. Transport, leisure and tourism	90%	65%
2. Banks	89%	84%
3. Technology, media and telecommunications	88%	82%
4. Life sciences	83%	83%
5. Retail, wholesale and distribution	81%	69%

The sectors most likely to have conducted an internal investigation were:

Sector	Conducted an internal investigation in the last three years	Significantly impacted by serious misconduct
1. Banks	84%	89%
2. Life sciences	83%	83%
3. Technology, media and telecommunications	82%	88%
4. Manufacturing	82%	78%
5. Consumer goods	74%	74%