Fraud hits half of companies

Oct 17 2007 by Nic Paton Print This Article

Most British businesses seriously underestimate the risk of fraud, with just one in five expecting to be affecting compared with half who actually suffer from fraudulent activity.

A survey by PricewaterhouseCoopers has revealed worryingly levels of complacency among British managers about a problem that is now costing businesses some 1.75m a year, a figure that has more than doubled in the past two years.

Corruption and bribery are the fastest-growing forms of UK fraud, and the costs simply of managing fraud have now risen to three quarters of a million pounds per company, said PwC.

Not only has fraud become more costly, but UK firms now experienced some of the highest incident rates in the world.

UK businesses that suffered fraud were typically affected 15 times in the 24-month period twice the global average and three times more than the average in Western Europe, it said.

Despite this, UK managers appeared to be in denial about the scale of the economic crime challenge.

Under a fifth 17 per cent of companies surveyed believed they would become a victim, while the reality was that nearly half had been affected.

This denial was partly a result of the fact that few frauds ever went to court and so were therefore not on the public record.

Andrew Gordon, partner in forensic services at PricewaterhouseCoopers, said: "The fight against fraud is a constant struggle. In order to assess and manage risk, a constant re-evaluation of all fraud risk management activities and the culture that supports them in every market of operation is vital to maintain a clear, competitive advantage and the confidence of all stakeholders.

"As with all crimes and unwanted business risks, consistent and effective prevention is better than after-the-event reactions," he added.

The survey also revealed the changing nature of fraud, with instances of corruption and bribery doubling in the UK since 2005.

One in ten UK businesses polled said they had lost a business opportunity to a competitor who had paid a bribe.

Corruption, bribery and money laundering were becoming far more prevalent as businesses increasingly operated in more countries, it added.

The trend towards more globalised markets was a clear factor in the increased threat of fraud.

Nearly half of UK fraud cases involved an overseas party. The possible impact of economic crime was now considered a significant factor in about half of investment decisions, with nine out of 10 UK respondents citing corruption as their major concern when doing business with E7 countries.

Tony Parton, a partner in forensic services at PricewaterhouseCoopers, said: "The rapid growth of corruption and bribery as a form of fraud in the UK underlines the increasingly globalised business world in which we operate.

"As E7 economies become increasingly important business partners, the only real solution is for UK businesses to invest in their fraud risk controls both at home and abroad."

Despite the dramatic increase in corruption and bribery, asset misappropriation remained the most common form of UK fraud.

More than three quarters of businesses who reported fraud were victims of this type of economic crime, while accounting fraud (40 per cent), intellectual property infringement (32 per cent), corruption and bribery (28 per cent) and money laundering (20 per cent) were also prevalent.

"The failure to put in place adequate anti-bribery controls exposes companies to significant legal and regulatory risks," warned Parton.

"Companies are well advised, particularly those that do business in high-risk countries or sectors, to look at how effectively they are managing corruption risk and to take robust remedial action where gaps are identified," he added.

Among other findings, PwC found that the mobile workforce in the UK was increasingly cited as the culprits of fraud, with six out of 10 frauds perpetrated by non-management/other employees.

Nine out of 10 firms cited Sarbanes-Oxley regulations as a key reason for introducing anti-fraud measures.

And while the implementation of whistle-blowing systems had risen by a fifth, just half of those polled said this had been effective, with just three per cent of incidents detected this way.