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51% of UK businesses are victims of fraud – PwC survey


More than half of UK companies have been the victim of economic crime according to the latest annual survey by PricewaterhouseCoopers of global economic crime. Cybercrime was reported by 19% of UK companies which fell victim to fraud.

The UK's figure of 51% being hit in the last two years contrasts badly with a global average of 37%.

However, UK companies lead the way in insuring against economic crime: 50% more businesses take out insurance in the UK than elsewhere in Western Europe. Unfortunately, fewer than 40% actually recover any loss through insurance. PwC says this may reflect companies insuring against the wrong risks or agreeing an excess which is too high in relation to likely losses.

PwC's Global Economic Crime Survey 2003 suggests the UK's high crime figure may reflect increased levels of transparency and awareness in the country, assisted by legislation such as the Proceeds of Crime Act and the current Corruption Bill.

The PwC Global Economic Crime Survey was undertaken in association with international law firm Wilmer, Cutler & Pickering and is based on over 3,200 interviews in 50 countries with CEOs and CFOs.

What is the real cost of economic crime?

PwC reckons the real cost of fraud cannot be measured solely in financial terms but in the context of wider collateral damage such as weakened staff morale, tarnished reputation and damaged business relationships.

Some 60% of UK businesses which suffered economic crime reported negative impact on staff morale, 31% an impact on corporate reputation and 29% damage to business relationships.

Andrew Clark, a partner in PwC's Investigations and Forensic Services practice, said:

"Businesses which have been fortunate enough not to have suffered from fraud should learn from those companies which have: investing now in a comprehensive fraud risk plan in order to withstand the persistent threat of economic crime."

Are businesses well prepared to manage fraud risk?

UK companies appear complacent about the effectiveness of their fraud controls despite the rise in economic crime over the past two years.

Some 85% of UK businesses report that they are "quite confident" or "very confident" that they have adequate controls to deal with significant financial loss or damage to reputation and 81% say that they have strengthened controls in the last 12 months.

However, UK businesses lag behind the rest of Europe in the critical areas of improving standards of staff awareness training and tightening up security and reporting measures.

Partly as a result, companies find the identification of fraud risks difficult and UK businesses have been more likely to discover fraud by accident (46%) rather than through their risk management systems (43%).

It appears that many UK companies need to pay urgent attention to the Proceeds of Crime Act 2002 which widens the scope of crimes which must be reported and the range of individuals and organisations which are legally required to report.

Which types of economic crime are most prevalent in the UK?

Asset misappropriation, generally the easiest fraud to detect as it involves the theft of tangible assets with a defined value, is the single most common form of economic crime affecting 82% of those businesses which fell victim to fraud. Cybercrime was reported by 19% of UK companies which fell victim to fraud, while 11% reported financial misrepresentation.

Corruption and bribery

Only 5% of UK companies fell victim to corruption and bribery in the past two years.

However, there is little room for complacency as the Corruption Bill currently going through parliament and the Anti-terrorism, Crime and Security Act 2001 make company directors criminally liable in the UK for bribery conducted by operations in overseas markets.

What should senior management do to prevent economic crime in the future?

PwC says boards of directors must take a proactive role in preventing economic crime in their organisations.

This should include the following key elements:

  1. Determining a stance on economic crime issues. Essentially, senior management must strike a balance between a long-term ethical policy on economic crime and short-term commercial considerations.
  2. Identifying what policies are appropriate to their organisations. Good practice would include a code of conduct (currently only used by 68% of UK respondents), pre-employment screening (59%), a whistle-blowing system (52%), and specific fraud training for management (26%).
  3. Ensuring that an ethical culture is disseminated throughout the organisation, supported by policies which are rigorously adhered to. An example would be annual compliance returns being completed by employees.

A full copy of the report can be downloaded from PwC's site as a 24-page PDF.

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