Fraudsters draining £1bn from UK economy each year

Mar 14 2006 by Brian Amble Print This Article

Fraud now costs the British economy nearly £1 billion a year, and has tripled in the past three years, a damning new report has argued.

The FraudTrack study by accountancy firm BDO Stoy Hayward found reported fraud – and many experts believe most fraud goes unreported – rose 30 per last year compared with 2004.

Employee fraud has risen by a staggering 80 per cent since 2004 and by 200 per cent since 2003, it added.

The vast majority – 65 per cent – is simply down to greed and the desire to lead a lavish lifestyle, with 11 per cent linked to gambling and 10 per cent to people desperate to pay debts.

Yet businesses could take solace from the finding that the main ally of employers in tackling fraud is employees themselves.

When questioned, most employees said they would want to report dishonest colleagues, but many conceded they would probably be deterred because they did not know the correct procedure to follow or because of fear of recrimination.

The study questioned 1,500 people in employment and found 90 per cent said they would want to speak out if they found out that their boss had committed a serious fraud.

Yet many employees also admitted to finding a number of dishonest actions acceptable.

One in eight, for instance, felt it could be acceptable for managers to award a lucrative contract to a company secretly owned by a relative.

Andrew Durant, head of BDO Stoy Hayward's fraud investigations team, said: "Awarding contracts to businesses secretly owned by family or friends is a very common method used by fraudsters. The services will be overpriced or may never even materialise at all.

"At a very minimum, companies should expect a full disclosure of any connection a manager has with a supplier. Either way close family connections to a supplier, whether secret or not, will almost inevitably create conflicts of interest for even the most honest manager," he added.

The research also gave a big vote of no-confidence to the level of sentencing handed down to fraudsters.

In 2005, the typical prison sentence for a fraudster taking £1 million was under four years.

Three-quarters of people thought this was insufficient to deter a fraudster and 61 per cent felt the sentence should be longer.

"Given the government is currently trying to remove trial-by-jury for serious frauds to make it easier to convict in such cases, it is ironic that few people feel that the sentences being handed out when a conviction is secured provide much of a deterrent," said Durant.

One big step would be for companies to make it clear that they encouraged whistle-blowing or alerting management to suspicions of fraud, and even were prepared to reward workers who came forward with concerns.

"Our research shows that very few employees (1 in 12) expect any sort of reward or recognition for alerting their management to suspicions of a fraud - clearly, attitudes need to change," said Durant.

"Directors need to ensure their businesses move away from a culture where the whistleblower is seen as a 'grass'," he added.

By value, nearly half of all fraud reported was committed in London and the south east of England.

The biggest sector in terms of frauds taking place was financial services, followed by the wholesale trade.

Fraud is a male-dominated domain, with women accounting for only 18 per cent of those convicted for fraud.

Of the 90 per cent of employees who claimed they would report a fraud if they discovered it, 8 per cent would report it directly to the police.

A quarter would raise it with an outside adviser such as a lawyer or trade union, while 53 per cent would want to report it to someone senior at work.

However, of those who would report it at work, more than a third feared some sort of recrimination, whether losing their job, being cold-shouldered by colleagues or in some way having their career prospects harmed – only 8 per cent expected reward, recognition or promotion.