UK loses £98.6m annually to fraud and error

The UK is losing an estimated £98.6bn annually to fraud and error, with losses starting to rise rather than decrease post-recession, according to research from PKF Littlejohn and the Centre for Counter Fraud Studies at the University of Portsmouth

The data shows UK losses increased in 2012-2013 compared to 2010-2011, up from 5.01% of annual expenditure to 5.9%. This represents an increase of 17.8% in a year and means losses are now 29% higher than for the period prior to the recession from 1997 to 2007.

Jim Gee, head of forensic and counter fraud services for PKF Littlejohn, said this increase bucked the usual trend whereby fraud typically increases during a recession and plateaus or decreases slightly afterwards.

Gee said: ‘It may be that longer term social and technological factors are an underlying cause of the growth of fraud, such as a greater individualisation, with less adherence to collective moral and ethical ‘norms’ driven by increased isolation as we all retreat inside our digital devices.’

The report also suggests that the increased complexity of processes and systems, the trend for fewer face to face transactions and the fact that more people came under financial pressure during the financial crisis may also be behind the rise.

Globally, the research shows businesses and organisations around the world are losing an average 5.6% of annual expenditure due to fraud and mistakes, or around £2.78 trillion each year. In some areas of expenditure, such as procurement, losses rose to anywhere between 7% and 18.7%.

Gee said: ‘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 Financial Cost of Fraud 2015 report reviewed 382 statistically valid loss measurement exercises published over the last 17 years, covering over £9.76 trillion expenditure. The exercises looked at 40 different types of expenditure in 46 organisations from nine countries (UK, US, France, Belgium, Netherlands, Ireland, Canada, Australia, New Zealand).

The report is available here: www.pkf-littlejohn.com/the-financial-cost-of-fraud-2015.php

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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