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19 October 2011 | Adam Leach
Incidents of procurement fraud in
China have risen by 13 per cent, despite the overall fraud rate in the country
falling, a study has found.
The Annual Global FraudReport, published yesterday by risk consultants
Kroll and The Economist Intelligence Unit, reports
that supplier and procurement fraud has risen from 20 per cent to 33 per cent in
2010/11, making it the most prevalent type of fraud in the country.
The report, which surveyed 1,265
senior executives from around the world, found that more than half (55 per
cent) of China-based respondents believe they are highly or moderately
vulnerable to procurement fraud.
David Wildman, a managing
director based in Kroll’s Singapore office, said: “Collusion, fraud and
corruption often flourish where victims are at an information disadvantage. Due
diligence may involve checking voluminous records in foreign languages and
jurisdictions so companies that rely on partners, intermediaries and agents
dispersed along global supply chains face numerous vulnerabilities.”
Asked to identify the single
biggest factor increasing exposure in China, 43 per cent cited high staff
turnover. As a result, 38 per cent said they would invest in training and
whistleblower phone lines. However, the report concluded that this is unlikely
to settle the issue: “These measures are not sufficient given that China had
the second-highest level of fraud perpetrated by senior management (who are
unlikely to be reported by their juniors).”
The report also found just over a quarter (27 per cent) of global
businesses are well prepared to comply with anti-fraud and corruption
legislation such as the Foreign Corrupt Practices Act and the UK Bribery Act.