Procurement fraud on the rise in China

19 October 2011

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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.

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