Global fraud costs balloon to £3.89 trillion
17 Jul 2019
Fraud is costing businesses and individuals in the UK £130bn each year, while the cost to the global economy is put at £3.89 trillion, with losses rising by 56% in the past decade
17 Jul 2019
The Financial Cost of Fraud Report, produced by accountants Crowe and the Centre for Counter Fraud Studies at the University of Portsmouth, reviewed 690 loss measurement exercises undertaken over the period from 1997 to 2018.
The global average loss rate for the period of the research (6.05%), when taken as a proportion of the global GDP for 2018 equates to £3.89 trillion, a sum more than 80% greater than the UK’s entire GDP.
Even reducing such losses by 40%, which individual organisations have achieved, would free up more than £1.55 trillion – a sum greater than the GDP of 174 countries, including Spain, Australia and Mexico.
Since the start of the global recession in 2008, there has been an increase in average losses from 4.57% to 7.15% for the period 2017–2018, marking a 56.5% rise.
Jim Gee, partner and national head of forensic services at Crowe, said: ‘The figures quoted in the 2019 report are stark. In the 10 years since the first Financial Cost of Fraud report was published, the UK and global economy has suffered rising losses each year, owing to a multitude of new and diverse threats.’
Crowe’s analysis suggests the reasons for these increases – whether over the last two years or over the longer period since 2007 – go beyond the economic cycle. Previous research has suggested some evidence that certain frauds increase during recessions and plateau or decrease slightly during periods of economic growth.
However, this does not explain why the cost of fraud has continued to increase since economies have returned to growth, and it may be that longer term social and technological factors are an underlying cause of the growth of fraud, in addition to the effect of the economic cycle.
The report estimates that were organisations to correctly measure, manage and introduce procedures to reduce fraud, potential savings of up to £76bn could be made annually.
Gee said: ‘Sadly, too many organisations adopt a reactive approach to fraud and only look to tackle it once it has taken place, and losses have already occurred. A change of perspective is needed. Fraud is an ever present, high volume, low value problem and only a small proportion is detected. The question is not if it is taking place, but at what level.
‘We need to view fraud as a business cost – by understanding the nature and scale of the cost, we can reduce its extent – enhancing the profitability of companies and ensuring better funded public sector and charitable organisations.’
Separately research by Grant Thornton warns that in the last 12 months, the total cost of cyber security breaches to UK mid-market businesses has reached at least £30bn.
However, 63% of those companies do not have a board member responsible for cyber security, and only a third (36%) have provided all their employees with cyber security training in the last 12 months.
More than half (53%) of the companies interviewed reported losses equivalent to 3%-10% of revenue following a cyber-breach. For those businesses hit most severely, losses can reach up to 25% of revenue, and 6% of the businesses surveyed reported a loss of this size.
Almost 70% of the respondents felt confident in their ability to respond consistently at any time to a cyber-attack across their entire organisation. Conversely, over half of the businesses surveyed do not have a cyber incident response plan in place (59%).
James Arthur, partner and head of cyber consulting at Grant Thornton UK, said: ‘Cyber-crime represents a serious threat to every UK business and just one successful attack can amount to a huge revenue loss. Mid-market companies are particularly vulnerable as they have a level of resources that make them an attractive target.’
By Pat Sweet | 17-07-2019