UK surfing an economic crime wave, says PwC crime survey
Economic crime in the UK is soaring as business and public sector organisations struggle in the face of economic austerity, according to the latest Global Economic Crime Survey (GECS) from business advisors, PwC.
Launching the UK findings of the survey in Belfast, PwC forensics partner Ian McConnell said that over half (51%) of the UK respondents to the survey reported at least one instance of economic crime in the last 12 months.
He said this is a significant increase on both the 43% of victims recorded in the 2009 GECS and the 34% of organisations worldwide that admitted to falling victim to fraud in the last 12 months:
“During a downturn, some core functions like compliance and internal audit, which are the first lines of defence against fraud, are also the first and hardest hit by corporate cost cutting.
“In the current economic environment, under-staffing and increased workloads can mean internal fraud going undetected.
“Given some concern as to the level of detections, the situation may be even worse than the survey suggests.”
Presenting the survey findings to a PwC Fraud Academy event, Finding where the truth lies, Ian McConnell said the most worrying element of the survey was the extent to which UK public and private sector organisations were falling victim to so called white collar fraud:
“Nearly a quarter of all the UK public sector organisations and private sector businesses we surveyed said they’d experienced more than ten incidents of economic crime during the past year.
“Across the UK, we are surfing an economic crime wave.”
PwC’s Global Economic Crime Survey (GECS) is acknowledged as the most comprehensive study of economic crime in the business world. For its 2011 survey, PwC’s Belfast-based Forensic Services team carried out the project management of both the global and 34 territory reports, polling 3,877 organisations in 78 countries to determine the extent, depth and trends in economic crime.
Delegates at the PwC Fraud Academy presentation were told that survey findings suggest that a combination of rising economic crime in the UK, accompanied by widespread spending cuts, limited the resources available to focus on economic crime.
This, the report concludes, makes today’s business environment altogether more difficult and risky than in previous years.
Since the last PwC Economic Crime survey in 2009 there has been an 11% increase in the number of UK respondents reporting the cost of fraud as between $100,000 and $5m.
The proportion reporting the cost as greater than $5m has risen by 3%, suggesting that overall, the actual cost of fraud for most organisations is rising. However, PwC warns that the true costs could be much higher, given the proportion of frauds that are likely to have gone undetected.
The survey found that while the majority of UK economic crime is still external, over a third of organisations said their own employees were responsible for the largest frauds, with the typical employee fraudster being male, aged between 31 and 40, educated to below degree level, and having worked for the organisation for three to five years.
The profile of both UK and global fraudsters is virtually identical, with the exception that outside the UK, those defrauding their employer are more likely to have at least a first degree.
In addition, outside the UK these fraudsters are described as senior management, although in the UK more are termed as middle managers.
Ian McConnell says the growing profile of middle management fraud in the UK can be explained:
“Difficult economic conditions are reducing the opportunities for promotion – middle managers in the UK tend to stay at that level for longer than their global counterparts.
“Indeed, there is some evidence that middle managers who engage in fraud rationalise their crime as a response to a lack of promotion they feel they deserve.
“Outside the UK, however, victim companies are more likely to be defrauded by senior managers who exploited their position solely for their own benefit.”
The survey reveals that Cybercrime has become the third most common type of economic crime in the UK, while levels of ‘conventional’ economic crime have fallen (e.g. asset misappropriation fell by eight percentage points compared with 2009; accounting fraud also down, by five percentage points).
PwC says that many organisations are not clear about exactly what cybercrime is, who it affects and what they need to do to protect themselves, with around four in ten respondents saying their organisation doesn’t have the capability to prevent and detect cybercrime.
The report reveals that around 26% of those who experienced an economic crime in the last 12 months reported a cybercrime. This, says PwC, is a dramatic finding and marks the promotion of cybercrime to the premier league of fraud.
As well as direct financial costs, there are other commercial consequences of cybercrime, such as reputational/brand damage, poor employee morale or service disruption.
Around 83% of respondents feared reputational damages as the biggest consequence of cybercrime.
Ian McConnell concluded:
"Reputational damage strikes an organisation at its core, seriously damaging the perception of a brand, leading to loss of market share.
“As society becomes less tolerant of unethical conduct, businesses need to ensure they place a premium on building public trust.
“Crime at this level is increasing, becoming more complex and much more difficult to detect and prosecute.
“No organisation, regardless of size and ownership, is immune from economic crime and few of even the largest and most sophisticated organisations can tackle it without professional help.”
Contact details
Email: Ian McConnell
Tel: +44 (0)28 9041 5681
