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October 20, 2009 3:29 PM

Thinking of Outsourcing to Cut Costs? Buyer Beware.

Posted by D.M. Levine

A new study says that companies that outsource legal work to save money are more susceptible to fraud, our sibling publication, Corporate Counsel reports

According to Kroll's 2009 Corporate Fraud Survey released on Monday, many companies across industries make the mistake of deciding to outsource work "without a thorough assessment of the risks involved in determining what is to be outsourced and to whom," Corporate Counsel says. 

By focusing on the benefits of outsourcing such as cost savings, companies fail to consider problems that can arise when outsourcing, leading to a greater incidence of fraud. 

The type of fraud at risk depends on the nature of the work being outsourced, according to the report. Common forms of fraud include theft of company assets and information theft. And some industries have seen more of an uptick in reported fraud than others.

The financial services industry, for example, has seen an exponential rise in fraud so far this year (Kroll's survey covers all of 2009 to date). That's because much of the malfeasance that flourished during the boom economy is coming to light now that many financial institutions have gone under, Corporate Counsel reports. 

Another particularly hard hit industry is professional services, which includes law firms. That sector saw incidence of fraud more than double in 2009, with companies reporting an average loss of $2.9 million over three years. 

And other industries are not immune: health care, retail and wholesale distribution, and travel and leisure also suffered increased level's of fraud this year.

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