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UK losing billions to fraud and mistakes

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12th Feb 2015
Freelance journalist
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UK businesses and public-sector organisations are losing an estimated £98.6bn to fraud and mistakes every year, according to research from PKF Littlejohn and the Centre for Counter Fraud Studies at the University of Portsmouth. 

Losses from fraud and error as a percentage of annual expenditure increased by 18% from 2010-2011 to 2012-2013 (from 5.01% to  to 5.9% ), the report also found.

"This unexpected increase bucks the typical cycle of fraud after a recession, indicating that new social factors such as reduced adherence to collective ethical and moral norms, may be at play," the report said.

Businesses and organisations worldwide are losing about £2.78 trillion each year. Reducing this figure by 40% would free up more than £1.1 trillion – a sum greater than the gross domestic product of 175 countries.

One of the report’s authors, Jim Gee, head of forensic and counter fraud services for PKF Littlejohn, said: “Beating fraud is every company’s business. If a business was paying 6% over the odds for its energy and utilities, or rental properties then management would be quick to act or shareholders and investors would want to know why. Fraud is the last great unreduced business cost.”

The report cites examples where losses have been reduced by up to 40% in 12 months. Achieving this would free up more than £39bn each year – equivalent to what the UK government spends annually on education or 39% of the £100bn NHS budget for 2015.

The report's figures for fraud and errors are based on "valid loss measurement exercises" for estimating fraud in an organisation by checking one type of its expenditure for fraud. This figure is extrapolated across an organisation to give an accurate estimate for total fraud.

The biggest losses from fraud are in payroll and procurement - for example, people not getting the goods or services they pay for, "ghost employees" or employees lying about their experience and qualifications (meaning they can't do their job as well as hoped and are more likely to make errors).

Gee told AccountingWEB that although there is no easy solution for reducing fraud which "continually mutates and spreads like a clinical virus", organisations can do two main things to counter it.

The first is to create a strong anti-fraud culture in the workplace "mobilising the honest majority who say that fraud in unacceptable".

The second is to deter fraud through criminal, regulatory and disciplinary sanctions. The idea is to make the risks of fraud outweigh the rewards.

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By justsotax
12th Feb 2015 16:50

I agree..

and I would start with the 'people not getting the goods or services they pay for'.  As a taxpayer I can't believe I am paying for a university to waste its time on this type of junk report...perhaps its time those people who have lived in the university bubble get out in the real world rather than defrauding the general population with this type of waste of space report, using our money. (and breath...)

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By Jim100
13th Feb 2015 12:56

dishonest

Well I agree with the report findings, fraud is rife. Its really a ME culture and trying to get whatever they can.  It does make me sad that people do not care 

I saw it at first hand in my previous organisation. Growing company lacking in controls and so many people taking advantage and making large sums of money on the side, Management turned a blind eye to certain things. It was disheartening to see even though it was not my money at stake. Certainly, it was an eye opener and only good thing that resulted from the fraud is that I can advise my clients to make sure they put in controls at the earliest and be more suspicious of odd behaviour like if their employees insist in using certain suppliers

Organisations should be trained on how to prevent and detect fraud.  

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