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Natural resources businesses report high levels of fraud, cyber, and security incidents during 2017

20th February 2018

Fraud, cyber, and security risks continue to reach high levels in the natural resources sector, according to senior corporate executives surveyed worldwide for the 2017/18 Kroll Annual Global Fraud & Risk Report1.

85% of companies surveyed worldwide experienced a fraud incident in 2017,

87% reported at least one cyber incident, and 81% reported security incidents, according to the Kroll Annual Global Fraud & Risk Report.

Confidential information is coming under increasing threat.

Executives are feeling a heightened sense of vulnerability to fraud, cyber, and security risks.

The proportion of executives reporting that their companies fell victim to at least one instance of fraud over the past 12 months was 85%, marginally above the global average across all industry sectors (84%).

An even greater percentage of executives from the natural resources sector (87%) said their companies had experienced a cyber incident or information theft, loss, or attack over the past 12 months.  Just over eight in 10 respondents (81%) reported the occurrence of at least one security incident during the past year, 11 percentage points above the global average.

The Kroll Report reveals that respondents in the natural resources 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

Management conflict of interest was the most prevalent type of fraud experienced in the natural resources sector, cited by 35% of respondents, up seven percentage points from the previous year. Market collusion was second on the list, reported by 29% of executives, followed closely by IP theft (27%).

More respondents from the natural resources sector (87%) 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 (37%) executives surveyed said their companies had been impacted by a virus or worm attack. A similar proportion of respondents from the sector (38%) said they had suffered an email-based phishing attack, while 31% suffered an alteration or change in data.

Physical theft or loss of intellectual property (IP) was the most prevalent type of security incident. Of those executives in the natural resources sector whose company experienced a security incident this past year, 44% said their organizations fell victim to IP theft or loss.

Jason Smolanoff, Senior Managing Director and Global Cyber Security Practice Leader for Kroll, explained: “In a digitized 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 monetize 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 natural resources sector indicated that the repercussions of fraud, cyber, and security events were costly and wide-ranging, affecting employees, customers, as well as the organization’s reputation and bottom line.

Employee privacy, safety, or morale was negatively affected by incidents according to 82% of respondents whose companies had experienced fraud, 75% of those that reported a cyber incident, and 81% of executives whose companies endured a security event.

Respondents stated that customers had been negatively impacted by all three risk factors – 75% by a fraud incident, 66% by a cyber incident, and 76% by a security incident. A similar proportion said that the impacted company’s reputation had suffered due to a fraud (62%), cyber (74%), or security (66%) incident.

Businesses suffered significant economic damage from fraud, with nearly a third of respondents (32%) reporting losses of 7% or more of company revenues. No respondents from the natural resources 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 feature prominently in the list of top worries for respondents across all three risk categories.

Two thirds of respondents (65%) from the natural resources sector believe their companies are highly or somewhat vulnerable to information theft, loss, or attack, eight 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 69% especially wary of email phishing attacks.

The proportion of respondents from the sector who said they feel highly or somewhat vulnerable to physical security threats was also substantial. Almost three quarters (71%) of respondents stated their companies could be particularly prone to environmental risks including damage caused by natural disasters, the greatest single concern. Approximately six in ten (58%) of respondents felt exposed to physical theft or loss of intellectual property.

Culprits inside and outside

Insiders and ex-employees continue to pose the greatest fraud threat to companies in the natural resources sector. Respondents revealed that fraud incidents are often inside jobs perpetrated by one or more of the following: junior employees (45%), ex-employees (41%), or senior or middle management (34%). Vendors/suppliers and joint venture partners were next on the list, both at 32%.

Ex-employees were the main culprits of cyber incidents (33%) and senior or middle management were responsible for 40% of security incidents experienced by executives in the natural resources sector.

Imperative to mitigate risks

All anti-fraud measures mentioned in the survey were widely adopted by over half of respondents in the natural resources sector, with IP risk assessment and trademark monitoring the most widely implemented anti-fraud measure at 80%.

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. 47% of respondents currently involve the board of directors in the formulation of cyber security policies and procedures, and another 38% 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 69% of respondents have a plan for securing intellectual property. However, almost a fifth (19%) 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 organizations 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, organizations 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.”