Cost of economic crime doubles but business still underestimates its threat

• UK business underestimates the risk of fraud – fewer than one in five expect to be affected but half have suffered;
• Average cost to businesses affected by fraud doubles to £1.75 million;
• Corruption and bribery are the fastest-growing forms of fraud;
• Costs to businesses of managing fraud are £0.75million per company in the last two years.

 UK businesses affected by fraud have seen a doubling of the average cost of economic crime over the last two years, according to the latest Global Economic Crime Survey by PricewaterhouseCoopers LLP. This major international research, the largest study of its kind, also reveals that corruption and bribery is the fastest-growing form of UK fraud, doubling since the last survey in 2005.

UK businesses saw the cost of fraud jump, on average, from £0.8 million in 2005 to £1.75 million in 2007. Not only has fraud become more costly, but the UK experiences 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.

Despite this, UK plc appears to be in denial about the scale of the economic crime challenge. Only 17% of companies surveyed believe they will become a victim, while the reality is that half have been affected (48%). This denial is partly a result of the fact that few frauds actually go to court and are therefore on the public record.

John Tracey, partner, forensic services, PricewaterhouseCoopers LLP in the Midlands, said:

“The fight against fraud is a constant struggle for businesses in our region. PricewaterhouseCoopers biennial study continues to show that 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.”

The increase in corruption and bribery is worrying when seen in the context of global fraud. Corruption, bribery and money laundering are becoming far more prevalent as businesses increasingly operate in more countries and it will be important for UK businesses to carefully monitor these trends for further increases.  

UK problem; global challenge

The trend towards a more globalised market is a factor in the increased threat of fraud. Nearly half (49%) of UK fraud cases involve an overseas party. The possible impact of economic crime is considered a significant factor in about half of investment decisions, with 90% of UK respondents citing corruption as their major concern when doing business with E7 countries.

John Tracey, partner, forensic services, PricewaterhouseCoopers LLP in the Midlands, continued:

“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 Midlands businesses to invest in their fraud risk controls – both at home and abroad.”

Types of fraud and effectiveness of UK response

Despite the dramatic increase in corruption and bribery, asset misappropriation remains the most common form of UK fraud. Some 77% of businesses who reported fraud were victims of this type of economic crime, while accounting fraud (40%), intellectual property infringement (32 %), corruption and bribery (28%) and money laundering (20%) were also prevalent.

While the under-estimation of fraud is a real concern, the UK does however appear to be more proactive than other countries in Europe in dealing with the problem, through the development of new controls and the strengthening of existing controls. There are, on average, ten key anti-fraud controls in place in the businesses surveyed.

UK respondents reported having more prevention and detection measures than respondents elsewhere in western Europe and the rest of the world.    

John Tracey, partner, forensic services, PricewaterhouseCoopers LLP in the Midlands, added:

“The failure to put in place adequate anti-bribery controls exposes companies to significant legal and regulatory risks.  In PricewaterhouseCoopers experience, many companies operating in emerging markets fail to put in place the necessary controls. Companies in the region 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.”

Other key UK findings include:

• the mobile workforce in the UK is increasingly cited as the culprits of fraud, with 60% of frauds perpetrated by non-management/other employees;
• Sarbanes-Oxley regulation is cited by 94% of respondents as a reason for introducing anti-fraud measures;
• the survey revealed a 21% increase in the implementation of whistle-blowing systems but only 51% said they were effective; only 3% of serious incidents were detected through such a system. There was an increase in the success of internal tip-offs instead.

John Tracey, partner, forensic services, PricewaterhouseCoopers LLP in the Midlands, said:

“Fraud is an ongoing business concern - not just ethically but to the bottom line. Measures such as the new Fraud Act demonstrate that the UK is travelling in the right direction to combat economic crime. These figures, particularly those which reveal the rising costs of economic crime, highlight the importance of preventing fraud, and businesses in the region should use them as an opportunity to assess their own fraud prevention and investigation processes.”

Contact details
Email: John Tracey
Tel: +44 (0)1509 604000