News that Swiss-Swedish engineering and automation technology group ABB has been hit by massive internal fraud in South Korea could be just part “of a ticking time bomb”, which could have a far greater impact than traditional cyber frauds according to Bottomline Technologies.
Zurich-based ABB announced on Wednesday that a “sophisticated” case of fraud discovered at a subsidiary in South Korea would cut last year’s earnings by an estimated US$100m. The unit’s treasurer went missing on February 7 and is suspected of forging documents and colluding with third parties in embezzlement and a misappropriation of funds.
Group chief executive officer (CEO) Ulrich Spiesshofer described the alleged fraud as “shocking news”, which threatened to damage ABB’s reputation. “The entire ABB group – all 132,000 of us – will have to live with the consequences,” Spiesshofer told staff in a letter.
Commenting on the case, James Richardson, financial fraud expert at Bottomline Technologies, said: “If cyber-fraud is a hornet’s sting, financial fraud from within an organisation is a parasite.
“It’s often unnoticed for long periods of time until it’s already caused significant material damage. In fact, over half of fraud is committed by internal staff who have worked there for more than six years.
“ABB’s fraud won’t be the last. It can happen to any company on the FTSE100 and wider. Companies need to adopt a balanced stance protecting themselves against internal and external fraud. It’s not only the immediate loss of money. Internal fraud often attracts costly investigations, reputational damage and a process overhaul due to the complex nature of some of these incidents.
“Gone are the days where companies just dealt with the repercussion rather than taking precaution. It’s crucial for financial decision makers to be fully aware of the potential fraudulent threats against their business payments, and add appropriate defences to ensure revenue and brand is affected as little as possible.”
Recent research by Bottomline found that despite 69% of UK financial decision makers being confident in their anti-fraud measures, over half still claim their revenue has been negatively affected by fraud. “This reflects the level of apathy from UK businesses, who are accepting that fraud is an acceptable cost of doing business,” stated the group
Bottomline cites that while some firms may have invested heavily in protecting their systems against external cyber-frauds; simple processes, guidelines and investment in systems to protect against internal financial fraud are often neglected. It found that 84% of mid- to senior level finance staff admit to knowing how they can safely avoid their security systems and processes to commit internal fraud.
Earlier this month ABB announced that the group is being investigated by the UK Serious Fraud Office (SFO) after the discovery of improper payments related to the subject of another criminal probe.