New research from fraud specialists at chartered accountants PKF
Littlejohn and the Centre for Counter Fraud Studies at the University of
Portsmouth indicates that UK businesses typically lose around 5.6% of
their total expenditures to fraud - £103bn (equivalent to 75% of their
PKF Littlejohn partnered with the Centre for Counter Fraud Studies at the University of Portsmouth to produce the new report Countering Fraud For Competitive Advantage, which is based on an analysis of 1,709 FTSE companies with £1.84 trillion turnover.
The report focuses on the cost to Britain’s FSTE listed companies for 2013-14 (the latest year for which data is available). It warns that only 1/30th of fraud is detected and that is typically the attention-grabbing ones that are not typical of most frauds.
The report focuses on total fraud (not just detected fraud) which, despite headline-grabbing cases, is typically systematic low value and high volume in nature.
The research reveals for Britain’s 1,709 FTSE companies researched:
· With total annual revenue of £1.84 trillion and pre-tax profits of £137.03 billion, these companies lost £103.23 billion in 2013/14 alone (the equivalent of 75% of their total profits)
· Reducing fraud by 40% (as has been achieved elsewhere) would effectively increase pre-tax profitability of these companies by £35 billion - over 22% (in section 2 of the report, there are examples of companies achieving such substantial savings through taking sustained steps to make fraud against them much harder).
· Losses from fraud have increased by nearly 18% over the three years since 2010-11, and by 29% since the start of the recession in 2008-9.
FTSE 100 companies
A summary of 85 of the FTSE 100 listed companies for which data was available for 2013-14 shows that those which were profitable had:
· total annual revenues of £1.24 trillion with pre-tax profits of £126.82 billion;
· fraud losses totalling £67.75 billion (equivalent to 54% of the total pre-tax profits of these companies).
FTSE 250 companies
A summary of 182 of the FTSE 250 listed companies for which data was available for 2013-14 shows that those which were profitable had:
· total annual revenues of £223.05 billion, with pre-tax profits of £20.68 billion;
· fraud losses of £12.2 billion, equivalent to 59% of the total pre-tax profits of these companies.
Jim Gee, co-author of the report and Head of Forensic and Counter Fraud Services at PKF Littlejohn, says:
“It is now recognised that the total cost of fraud can be accurately measured and that, because of this, it can now be managed and minimised like any other cost.
“Most fraud is high volume, low value and therefore difficult to detect and expensive to investigate. Companies which have successfully reduced the cost of fraud have focussed on pre-empting it: creating stronger anti-fraud cultures, more effective deterrence and preventing fraud by designing weaknesses out of processes and systems. Our report shows that a real competitive advantage can be gained from taking this approach.
“This is important because fraud over recent years has increased. There are many factors contributing to the increase, including the impact of the recession on people’s incomes and increased opportunities through the rise of the cyber world. But other factors, such as reduced adherence to collective moral and ethical norms, and the increasing pace of business life unmatched by related development of controls, are also important.
“What is notable is that we tend not to find big differences between companies in different countries. Instead we find big differences between companies that accept it is happening and that take fraud seriously and that who don’t, regardless of their country.”
Professor Mark Button says:
“Fraud is a significant hidden cost to many organisations and if average levels are experienced, this report shows the significant increase in profits that companies could benefit from if they invest in appropriate measures to reduce fraud.”
(Source - PKF Littlejohn Press Release)