Internal fraud to increase in the worsening economic climate warns PricewaterhouseCoopers LLP

Published at 16:07 PM on 10 December 2008

As the economic climate worsens, there are increasing signs that fraud, theft and other crimes against business will continue to rise and indeed intensify – and it is not just retailers on the High Street who will be impacted, says PricewaterhouseCoopers LLP.

While all organisations have their attention focused on weathering the current economic storm, the firm’s forensic services specialists warn that in these tough conditions it is all too easy to miss internal fraudulent activity in businesses across all sectors.

The Centre for Retail Research currently estimates that in the weeks leading up to Christmas £768 million will be stolen from retailers in Britain and that this figure will 4% – 9% higher as a direct result of the economic pressures currently experienced in the UK.

The extra demands made of family budgets at Christmas quite clearly aggravate what is already a challenging time financially for many people and as a result the boundaries of what is regarded as normal behaviour can become blurred. Already there are an increasing number of reports of high profile organisations in non-retail sectors suffering from staff frauds – a trend experienced during the last UK recession. Such incidents can cause significant direct financial loss as well as significant brand or reputational damage.

Neal Ysart, forensic services, PricewaterhouseCoopers LLP, said,

“We know from previous recessions that internal fraud is more likely to surface as economic conditions tighten. It is important that businesses take steps now to counteract any potential for incidents to arise. It is not simply about someone taking the office sellotape to parcel Christmas gifts but can be as serious as employees massaging expenses, something that can have a real impact on cash flow.

“Focusing on corporate survival is paramount. However, failing to effectively manage the threat of dishonest insiders could lead to a very unpleasant time for everyone concerned.”

PricewaterhouseCoopers has identified a number of quick and easy to implement steps that organisations can take to mitigate the serious impact on the business of internal fraud and misconduct.

First, organisations should recognise that while the current economic climate is creating a difficult business environment – times are also difficult for many of their staff, third party suppliers and partners.

Secondly, they should identify those activities management classify as internal fraud. This is key because internal fraud can range from misappropriation of assets, ‘fiddling’ expenses or stealing sensitive customer data to far subtler frauds such as misrepresenting performance figures to help achieve better bonus payments or embellishing a CV to increase the chances of employment. Identification is important because if a business doesn’t understand exactly what it is trying to prevent, it cannot expect its controls to be effective.

Finally, businesses should consider flexing their internal fraud controls to take account of seasonal and economic factors. For example, additional management checks could be put in place in high risk areas such as expenses or other areas of expenditure. If redundancies are likely to be made in organisations that hold valuable customer data, management should consider additional monitoring controls and exit screening.

These actions may act to deter potentially disgruntled employees from accessing data and then inappropriately sharing that data either internally or externally. At the start of the employee lifecycle, pre-employment screening may also help identify potential candidates who have, for example, embellished their CV.

Ends



For more information contact:

Derek Nash
Acting Head of Media Relations, PwC 
Tel:020 7804 3058 
Mobile:07703 470 224 
 

Neal Ysart
Senior manager, Forensic services, PricewaterhouseCoopers LLP 
Tel:020 7804 0373 
Mobile:0774 0923 120 

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