Fraud cost UK FTSE-listed companies an estimated £103.23 billion ($161 billion) in 2013–14, according to a report by PKF Littlejohn and the Centre for Counter Fraud Studies at the University of Portsmouth.
Globally, 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 2008–09.
The report is based on data from research covering 17 years, drawing on loss measurement exercises in various countries and more than 40 sectors. The average sum organisations lose to fraud globally is equivalent to 5.6% of expenditure. The researchers applied this finding to the 2013–14 data on the 1,709 companies listed on the London Stock Exchange to arrive at the cost of fraud to UK firms.
Incidences of fraud divert resources from the strategic objective they were allocated to support, harming productivity. By measuring and ultimately reducing such losses, organisations stand to improve efficiency and gain competitive advantage.
Organisations have traditionally considered incidences of fraud to be low-volume and high-value, and take a purely reactive stance once the fraud has been discovered and the losses incurred, the report says.
However, research suggests that just one-thirtieth of fraud is detected, and it is generally systematic and high-volume, and incidences are of low value.
Countering Fraud for Competitive Advantage urges companies to take a more proactive stance. “If you consider fraud just to be a crime, then you police it; if you think of it as a business cost like any other, then you manage and reduce it,” the report says.
The authors argue that fraud can be measured accurately as a business cost and that a significant number of cases can be prevented if companies ensure effective deterrents are in place. The researchers found that by bolstering an organisation’s levels of fraud resilience, losses could be reduced by up to 40% within 12 months.
Taking such steps would also have a significant effect on profitability. Extrapolating the 5.6% global loss rate and the 40% reduction figure, the aggregate pre-tax profits of those FTSE-listed companies that made a profit in 2013–14 would be boosted by £35.27 billion [$55 billion], or more than 22%.
—Samantha White (swhite@aicpa.org) is a CGMA Magazine senior editor.
