70% of major companies in the UK reported that they had been
subject to economic crime in the previous two years, according to a
European fraud study published today by PricewaterhouseCoopers. In
the UK, 89% of all frauds are committed by employees.
The report also found that in the UK:
- Cybercrime is the biggest fraud risk of the future with 53.5%
of UK organisations believing that they are at risk from
cybercrime. Moreover 83% of UK organisations believe that the risk
from fraud will be the same or greater in the future.
- 39% of UK organisations said they had not reported frauds to
the authorities.
- Only 15% of UK organisations have successfully recovered more
than 50% of their losses from fraud, perhaps reflecting the higher
incidence of internal frauds where the value of damages is often
difficult to establish.
- 62% of UK organisations accept that it is management’s
responsibility to prevent and detect fraud, compared to about 50%
across Europe.
- 50% of UK organisations uncovered fraud through a tip-off, far
more than in continental Europe where only 28% of organisations
said that fraud was detected through tip-off. This may reflect the
establishment of more effective corporate governance procedures in
the UK.
The assessment of fraud in the UK is part of the PwC “European
Economic Crime Survey – 2001” which analyses the scale, impact and
corporate perceptions of European fraud. The research, which was
based on interviews with over 3400 companies, not-for-profit
organisations and government bodies in 15 Western and Central
European countries, revealed:
- Fraud is estimated to have cost 536 of the leading European
companies interviewed at least €3.6 billion in the last two years
alone, a loss compounded by the fact that only 1 in 5 companies who
fell victim to fraud recovered more than half of their lost assets
and over half the companies surveyed are not insured against
fraud.
- At least 43% of major European companies have fallen victim to
fraud during this time and a third of all companies believe that
they are at greater risk to fraud today than 5 years ago.
- More than any other type of fraud, companies and organisations
are most concerned about cybercrime: 43% of organisations rate
cybercrime as the number one fraud risk of the future. Already
across Europe of those companies that had been a victim of economic
crime in the last two years, 13% stated that cybercrime was one of
them.
- Frauds committed by individuals within the organisation are
more common than those frauds perpetrated externally. Embezzlement,
or theft by an employee, has been the most prevalent type of
corporate fraud in the past two years with 63% of companies that
suffered reporting incidents of embezzlement.
- Of those frauds detected, 58% are uncovered by accident or
chance – revealing the inadequacy of many company control systems
in highlighting and detecting fraud. Compounding this risk,
although half of all companies believed that responsibility for the
detection of fraud lies with the board of directors, only 22%
provided specific fraud related training to management.
- Prevention of corporate fraud is no better: 80% of companies
who have been victims of fraud remain confident of their control
systems, despite the high incidence of over-all fraud rates and the
apparent ineffectiveness of existing anti-fraud procedures.
- Whilst almost 50% of organisations have a policy to report all
economic crime to the authorities, only 38% have actually pressed
charges. This highlights the fact that that for many companies the
associated consequences of fraud (negative publicity, a drawn out
judicial process and small chances of prosecution and recovery of
stolen assets) can be as damaging as the financial loss itself. A
higher proportion of organisations in Central Europe would report
all incidences of economic crime to the authorities reflecting the
greater role of the state in commercial life than in the West.
The survey also highlighted the non-financial damage from fraud:
36% of organisations felt that fraud had a negative impact on staff
morale; 16% believed that fraud hit an organisation’s brand.
Although the direct relationship between economic crime and share
price performance is complex, the fact that fraud can impact
negatively on so many of the critical factors driving corporate
performance (staff morale, business relationships and branding)
highlights how fraud can affect enterprise value over the long
term.
