United Kingdom �

Global Economic Crime Survey

November 2009

Fraud, who’s committing it?

Who knows about it?
Almost half our respondents experienced
fraud in the last year and 70% believe it
is increasing.
Stay ahead.
 United Kingdom
Introduction and demographics Economic crime – a significant
and growing business risk
The results of our 2009 survey show
Welcome to the United Kingdom report on economic crime. that fraud continues to be a pervasive
threat but, encouragingly, there are
This is our fifth Economic Crime Survey and once more is published signs that UK organisations are taking
in conjunction with the Global Survey. Our survey data now spans positive and successful action to
a 10-year period. Providing a comprehensive assessment of the prevent and detect economic crime.
nature and impact of economic crime on businesses worldwide, the There is still, however, a lot more that
organisations can do.
survey also takes an in-depth look at the trends and developments
associated with this issue. This report highlights the key issues
that have impacted UK organisations
Unlike previous surveys, this time we asked respondents to tell us over the past 12 months and
about fraud in the last 12 months (rather than previous two years, suggests specific steps that can be
as in past surveys). This means that we have been able to consider taken to help mitigate the fraud risks
that exist.
the impact of economic crime during a period of severe economic
downturn in the UK. With a 10-year history of research into this
subject already established, we are well-equipped to identify and Fraud in a downturn – impact
assess long-term trends in economic crime. on accounting fraud
The economic climate over the past
Globally, 3,037 respondents completed our web-based 12 months has resulted in not only
questionnaire. Of this total, 229 represented UK organisations. declining financial performance for
many UK organisations, but also an
39% of UK respondents represented listed companies, 33%
private entities and 20% were government and public sector increased level of fraud. UK respondents
reported higher incidences of fraud
organisations, with the balance made up of ‘other’ organisations (almost half) than reported by other
such as charities and cooperatives. In addition, almost half of global respondents (almost one-third).
the respondents were from senior executive positions within their Significantly, the level of fraud
organisations. The findings from questionnaires completed by these reported by UK respondents in this
229 respondents provided the statistics for the UK report. survey, based on a 12-month period
alone, is similar to the level reported
in the 2007 survey, but which data
covered a longer two-year period.
Global Economic Crime Survey • November 2009
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Certainly, the downturn is a real
concern for the majority of respondents,
with almost three-quarters considering
themselves to be more vulnerable
to economic crime in the current
economic climate.
57% of UK respondents reported a
decline in financial performance at
their organisations over the past 12
months. Approximately one-third of
those experiencing economic crime
in the past twelve months reported
an increase in the incidence and cost
of fraud in the period. Interestingly,
however, reports of fraud by
respondents that reported improved
financial performance in their
organisations in the last 12 months,
were similar to those organisations
that reported a minor or major decline.
This emphasises, irrespective of
an organisation’s own financial
performance, the broader, macro-
level impact that organisations found
themselves subject to in the unstable
economic conditions in the UK
and global economies in the last
12 months.
Asset misappropriation and
accounting frauds continue to be the
most significant types of fraud suffered
by UK organisations. In particular, over
40% of those respondents
experiencing economic crime reported
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accounting fraud in the last 12 months
alone – the same as the 2007 survey
based on a 2-year period (40%) and
almost four times the level reported in
our 2003 survey (11%). It is
unsurprising that this type of fraud
continues to be an issue for
organisations, whether because of
Click here to link to the electronic
version of the whitepaper
Figure 1: Fraud triangle
Incentive or Pressure
78%
identified by respondents leading to
greater risk of fraud in the current
climate were:
• At corporate level, senior
management want to report a desired
level of financial performance;
• Targets are more difficult to
achieve; and
• People want to make their numbers in
order to earn performance bonuses.
In other words, when setting their
financial targets, some organisations
have either neglected to factor in the
current economic climate or have been
over-optimistic about recovery from
the downturn, which has resulted in
increased pressures to meet these
targets and, as a result, the potential
For the first time, our survey explored
the possible relationship between the
performance-related compensation
of senior executives in an organisation
and the levels and nature of economic
crime. The results show that among
organisations with no variable
component of compensation, 26%
reported having experienced fraud
in the past 12 months. By contrast,
between 40% and 48% of those
with a variable, performance-related,
component of pay for its top
executives had been affected by
fraud at some point during the past
12 months.
Figure 2: Reported accounting fraud and level
of variable compensation for senior executives
in respondents organisations

!
No variable 33
pressures to meet financial targets for fraud. component 32
or incentives to perform better in the
To combat the threat of fraud, 32
economic downturn. Variable component
organisations must ensure that they – less than 20% 33

So what factors lie behind the increase keep a close eye on their businesses.
Variable component 31
in the risk of economic crime? We FRAUD RISK Of particular concern are autonomous – 20% to 50% 37
asked our respondents to attribute the entities and overseas locations.
main risk drivers against the three key Opportunity Attitude/ Cutbacks in resources, particularly Variable component 56
Rationalisation – more than 50%
elements of the ‘Fraud Triangle’. These 12% 8% where these affect the people 44

elements relate to fraudsters having; responsible for fraud prevention and

(1) an opportunity to commit a fraud;
(2) having an incentive or being subject
to pressure to commit fraud; and (3)
being able to rationalise their actions. r
detection, such as finance or internal 0 10 20 30 40 50 60
% reported accounting frauds
The dominant element identified audit, may result in senior management
UK Global
by respondents was an incentive or taking their eyes ‘off the ball’ – a
pressure to commit fraud (see figure 1). scenario that fraudsters can and
In those organisations where UK
Among the more common factors will exploit.
respondents reported no variable

Global Economic Crime Survey • November 2009 PricewaterhouseCoopers 2

 United Kingdom
component in their senior executives’
compensation structures, one-third
reported accounting fraud.
By contrast, and in line with the global
survey results, those organisations that
reported being a victim of economic
crime and a variable component in
senior executives’ compensation of
50% or more, of total pay, experienced
the highest level of accounting fraud
(56%) (see figure 2).
With the increased pressures and/or
incentives to commit this form of
crime in the current economic
climate, it is not surprising that
accounting fraud should continue to
be a live issue for our respondents.
There is nothing prima facie wrong
with variable pay, but it is clear that
organisations with such arrangements
also need to accept that this may
impose greater fraud risk and then
build in robust safeguards to prevent
and detect fraud.
To mitigate the risk of this type of
fraud, organisations must be willing
to reassess the realism of the targets
they impose, as well as review
variable compensation structures
in place. A focus on risk management
processes, including regular fraud
risk assessments, is essential for
organisations to address and mitigate
the increased fraud risk.
Global Economic Crime Survey • November 2009
Mitigating the risks – fraud risk
assessments
Fraud risk management processes
and internal controls are the most
effective tool for identifying potential
fraud threats and controlling the system
weaknesses that create opportunities
to commit fraud. This is supported by
our survey results. Almost two-thirds
of frauds reported by UK respondents
were detected by risk management
processes, controls or from the
organisation’s anti-fraud culture.
As noted earlier, almost three-quarters
of UK respondents believe their
organisation faces a greater risk
of economic crime in the current
economic climate. However, our survey
also shows that some organisations
are failing to address this issue.
Twenty percent of the respondents that
recognised this increased fraud risk
reported that they had not amended
their fraud prevention processes and
controls to reflect the increasing fraud
threat levels. Also, only 19% of all
respondents reported an increase in
the frequency of carrying out fraud
risk assessments. At first sight, this
indicates a level of complacency.
However, it is noteworthy that
respondents identified management
focus on other areas of the business
in the current environment, including
the ‘survival of the business’, as a
major contributory factor to increased
fraud risk. While we recognise the need
to ensure survival, we recommend that
senior management do not take their
‘eyes off the ball’ when it comes to
fraud risks.
The survey identified interesting
differences across organisational
types regarding the effectiveness and
level of fraud risk assessment. Only
one in every ten frauds in privately-
owned organisations was detected
by risk management procedures.
This may be because the majority
(72%) of privately-owned organisations
reported performing a fraud risk
assessment only once, or not at all, in
the last 12 months – significantly less
frequently than in other organisations.
By contrast, organisations in the
government and public sector seem
to be in line with the UK as a whole
regarding the frequency of their fraud
risk assessments. That said, they
reported just 4% of frauds having
been detected through such
assessments. This would suggest
that their fraud risk management
procedures are not yet as effective
as they could be, which may be a
factor in the higher level of fraud
(52%) experienced by government
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and public sector respondents, as
compared to other sectors.
Frequent fraud risk assessments are
essential for identifying potential fraud
threats and weaknesses in controls
that create opportunities to commit
fraud. However, 22% of respondents
reported that their organisations had
not performed a single fraud risk
assessment in the past 12 months
and 38% had performed an
assessment on one occasion only.
It would also appear that the smaller
the organisation, the less often fraud
risk assessments are performed.
Without regular assessments, frauds
are more likely to go undetected
(see figure 3).
Figure 3: Impact of the frequency of
performance of fraud risk assessments on the
level of fraud reported by respondents
Fraud risk assessments
not performed at all 39
Fraud risk assessments
performed either monthly
or quarterly
58
0 10 20 30 40 50 60
% reported frauds
When fraud does occur, the speed
and effectiveness of management’s
PricewaterhouseCoopers 3
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reaction is vital to the eventual
outcome. Organisations with clear,
well-communicated and carefully
planned fraud response plans are
better placed to address frauds
when they are identified.
Furthermore, to ensure that they
are effective, fraud response plans
should continually be improved
and monitored to keep up with the
changing economy, new technologies
and increasing innovation
from fraudsters.
So how often should organisations
perform a fraud risk assessment? This
is something that each organisation
will need to address on an individual
basis, but in the current economic
climate we recommend that for
most organisations the frequency of
assessments should be increased,
supported by continual monitoring
(with reassessments a priority
following major change events, such
as acquisitions). In particular, industries
such as financial services and
telecommunications, which are subject
to a constant change of fraud threats
and are targeted by external fraudsters,
should perform assessments on a
monthly basis. This will help to ensure
both detection and prevention against
all types of frauds.
Click here to link to Risking it All
Global Economic Crime Survey • November 2009
Bribery and corruption
UK respondents reported a relatively
low level of bribery and corruption
cases, both in terms of the perception
of the likelihood of this type of fraud
and the actual level of occurrence.
Indeed, only 9% of UK respondents
who had experienced economic crime
in the past 12 months reported having
suffered bribery and corruption,
significantly lower than those reported
by other global respondents (29%).
This is mirrored by respondents’
perceptions of bribery and corruption.
Looking forward, just 10% of UK
respondents believe that they are
likely to be exposed to this form of
crime in the next 12 months (as
compared to 16% globally).
These relatively low figures may
result, in part, from an apparent
regulatory indifference in recent
years in the UK towards enforcement
of bribery and corruption laws as
compared to the impact that the
US Foreign Corrupt Practices Act
(‘FCPA’) legislation and action being
taken in other countries has had.
In future, however, UK organisations
will have to address bribery and
corruption risks far more seriously.
The UK Ministry of Justice published
the draft Bribery Bill on 25 March
2009. The Bill proposes the
replacement of previous offences
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with a general bribery offence and a
specific offence extending to the
bribery of foreign public officials (both
of which are applicable to individuals
and UK-registered companies). It also
introduces a specific corporate
offence of failing to prevent bribery.
The specific corporate offence is
designed to make companies and
other corporate bodies responsible
for bribery committed on their behalf,
a familiar concept in the US FCPA.
The key potential liability relates to
failure to prevent active bribery for, or
on behalf of, the corporate body by
its employees, agents or subsidiaries.
A defence to the ‘failure to prevent’
offence exists if it can be shown that
‘adequate procedures’ were in place,
but these need to be ‘working in
practice’ by the time the Bill becomes
law. It is imperative that companies
take steps now to review their
current anti-bribery procedures and
processes, and to rectify any gaps.
Ensuring that robust and
comprehensive procedures are not
only in place, but also demonstrating
their effective operation, can take
considerable time and resources. ‘UK anti-bribery
At the time of writing, ‘adequate
procedures’ have not been defined.
regulations – act
Click here to link to ‘How much is
now or pay later’
enough’
PricewaterhouseCoopers 4
 United Kingdom
We recommend that organisations
seek the help of forensic practitioners
who have assisted US and European
organisations in recent years with the
design and, more importantly, the
implementation of anti-bribery and
corruption procedures.
With the introduction of new bribery
laws, it will be interesting to see how
levels of reported bribery and corruption
change in the UK in the future. One
thing is clear – management must
take action now if the correct tone is
to be established within the business.
Click here to link to ‘Act now or pay
later’ for readers
Building a zero-tolerance culture
Displaying an appropriate ‘tone at
the top’ of an organisation is key
to articulating expectations and
levels of tolerance where fraud is
concerned. This applies to all key
stakeholders, both internally and
externally. The messages should be
conveyed regularly and filtered through
from the CEO and the board to the
most junior staff members.
Communicating a zero level of
tolerance to fraud must also be
supported by the actions taken by an
Global Economic Crime Survey • November 2009
organisation and its senior executives.
Our survey shows that, in the majority
of organisations, the actions being
taken are not wholly appropriate.
As discussed earlier, fraud risk
assessments are not being performed
as frequently as they need to be.
Furthermore, while organisations
produce ‘codes of conduct’, they are
not always implementing and/or
monitoring them effectively. Certainly,
our experience has shown us that
codes of conduct in the UK, while
being a good start, are not always
implemented adequately, often
overlooking sufficient communication,
guidance and helplines. Without
these tools, codes of conduct are
practically useless.
Combined with the preventive
actions taken against fraud, there
should be a perception among
all stakeholders that organisations
are taking robust action against the
perpetrators of fraud. The greater
the increased severity of the actions
taken following detection of fraud,
the greater this acts as a deterrent
for repeat offences. This is supported
by a comment from respondents that
‘others do it so it’s okay’ as a
contributing factor to increased
rationalisation for greater fraud in
the current climate.
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Figure 4: Actions taken against the main difference between the seniority of
perpetrator of the most serious economic respondents and the levels of fraud
crime suffered
that they reported. Thirty-one percent
of senior executives reported their
Dismissal 61 organisation having suffered economic
crime, in contrast to 53% of
Civil actions/
criminal charges
34
non-senior executives.
Warning/reprimand 27
Our experience suggests that
knowledge and details of certain types
Internal
Notify relevant
regulatory authorities
17
of fraud are not flowing up through
Transfer 1 some organisations to the highest
levels. We would not expect senior
Other actions 7 executives of an organisation to
be aware of every fraud suffered.
Did nothing 2
However, the significant differential
Civil actions/ identified above is likely to have a
41
criminal charges
noticeable impact on the anti-fraud
Notify relevant
regulatory authorities 30 strategy and the cost of fraud for
Cessation of the
an organisation. This is therefore
28
business relationship something that senior management
External
Other actions 8 needs to be alert to if they are to
assess and mitigate the fraud risks
Did nothing 3 that they face.
Don’t know 5 Encouragingly, half of all respondents
reported that, in order to reinforce
0 10 20 30 40 50 60 70 ethical behaviour, they had improved
% reported frauds the ‘tone at the top’. This is a key
action in the fight against fraud.
Notwithstanding the above, it is If senior management is seen to flout
essential that senior management the rules, or otherwise act in a manner
should have a good awareness of the
that is perceived to be unethical,
risk of fraud in the organisation, to be
it is not surprising that more junior
able to deliver appropriate messages.
members of the organisation
In analysing our 2009 survey data, follow suit.
we found that there was a stark
PricewaterhouseCoopers 5
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Fraud and its victims
As noted earlier, almost half of UK
respondents reported that their
organisations have suffered economic
crime in the last 12 months, as
compared to only one in five in Western
Europe and one in three globally. These
figures suggest that UK organisations’
control environment and fraud
detection measures are working more
effectively than their European and
worldwide counterparts. However, the
findings may also suggest that UK
organisations are subject to a higher
amount of fraud than their European
and worldwide counterparts. If the
latter is true, then UK organisations
need to ensure that the controls and
policies they have in place to prevent
fraud are working effectively.
The bigger you are, the more
fraud is reported
The survey highlights a correlation
between the size of an organisation
and the incidence of reporting fraud.
Although organisations of all sizes
are susceptible to fraud, the bigger
the organisation, the more fraud
is reported.
Almost three-quarters of respondents
with more than 5,000 employees were
victims of economic crime in the
Global Economic Crime Survey • November 2009
past 12 months. Furthermore,
almost one-third of these
organisations had experienced over
100 instances of fraud, compared to
just one in twenty among smaller
organisations in the UK. We believe
that this is predominantly due to
larger organisations having more
resources to allocate to fraud risk
procedures and controls, as well as
to the fact that bigger businesses
make more attractive targets.
Figure 5: Large organisations report more frauds
29
Up to 1,000
employees
21
1,001 – 5,000
employees
More than 5,000
employees
0 10 20 30
% reported frauds
UK Global
However, smaller organisations in the
UK market should not interpret this as
meaning they face less fraud risks and
use it as an excuse for introducing
lighter fraud risk assessments. It may
well be that these smaller organisations
have been equally susceptible to fraud
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in the past 12 months, but they Perception or reality
have lacked the mechanisms to
detect its occurrence. The survey shows that the current
economic climate is a considerable
concern for respondents in relation
Organisation type to fraud risk. Seventy percent of
respondents believe that they are
The survey highlights marked
subject to a greater risk of economic
differences between different types
crime in these times. Interestingly,
of organisation – listed, private,
only 37% of the global respondents
government and public sector.
thought their organisation was at a
The most significant contrast is
greater risk of fraud. This supports our
the lower level of fraud reported
view that fraud risk awareness in the
by privately held organisations,
UK is generally high, especially in
as compared with other types.
comparison to our global counterparts.
As noted above, this apparent
Overall, in line with the global results, UK
lower incidence of fraud in private
respondents reported employee morale
companies may actually represent
to be the most significant area impacted
a lower detection rate. In this respect,
45
by fraud. However, when we analyse the
it is notable that our survey results
41 survey into specific industries, financial
show that private organisations are
services’ respondents reported,
the least likely to review their anti-
72 not unexpectedly, that relations with
fraud policies (39% of them review
53 regulators was the most significant
these policies, compared to the
UK average of 52%).
area impacted by fraud. This may
represent the increased involvement
40 50 60 70 80
A further key finding from our with regulatory bodies, such as the
survey is that the perpetrators Financial Services Authority (‘FSA’),
of economic crime in private in the current economic climate.
companies differ from those in
The consensus was different among
other organisational types. In private
government and public sector
companies, almost two-thirds of
respondents. For them, the principal
frauds are committed by internal
concern was the impact of fraud on
staff, as compared to roughly half
their reputation/brand. This is not
in the other organisational types.
unexpected, given the sensitivities
around various high-profile frauds
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 United Kingdom
and data losses within the public
sector in recent years, which have
impacted these organisations.
In the current economic climate, UK
respondents are finely attuned to the
potential for further frauds in the next
12 months. Surprising, however, is their
perception around the impact of
economic crime – considerably lower,
as we discovered, than global
respondents’ perceptions of this threat.
UK respondents believe that the
collateral damage from fraud is much
lower across all areas (see figure 6).
Figure 6: Collateral damage
9
Reputation/brand
0
Share price 3
6 or have a lack of confidence in the
Employee morale
9
Business relations
10
Relations with
regulators
0 10
% reported frauds
UK Western Europe
Global Economic Crime Survey • November 2009
This difference in views could be due
to the UK experiencing a high amount
of asset misappropriation frauds,
more than the global average,
which typically can be quite small in
amount, relative to other frauds, and
therefore probably considered less
damaging to the business.
Of further interest are UK respondents’
views on whether they will be the
victims of economic crime in the
future. Of those respondents who
suffered accounting and asset
misappropriation fraud in the past
12 months, 68% and 71%,
respectively, think that it is likely that
they will experience it again in the next
twelve months. This suggests that
16
19 organisations may have, thus far, failed
to introduce the measures and controls
needed to prevent repeat attacks and/
effectiveness of existing measures.
16
This needs to be recognised and
25
32 subsequently addressed by UK-based
organisations, if they are to mitigate
effectively the fraud risks that they face.
17
22
Among respondents who reported
that their organisations have not
15
16
experienced economic crime in the
past 12 months, we find that only
20 30 40 11% and 13% believe that they are
likely to suffer accounting fraud and
Global asset misappropriation, respectively,
in the next 12 months. This vast gap
between perception and reality is
dangerous and one that organisations
should take steps to bridge now,
before it is too late.
Of particular interest is the perception
of the respondents regarding the
perpetrators of fraud in the UK. For
nine of the twelve economic crimes
mentioned in our survey, more
respondents believed them to be
committed externally than internally.
In reality, however, economic crimes
are perpetrated as much by internal
staff as they are by external fraudsters.
These results could be due to the trust
inherent in human nature. However,
this difference between perception
and reality is something that needs
to be addressed if preventive and
detective measures are to be effective.
Pre-employment screening can be a
useful and effective tool to help mitigate
such internal risks, both for new joiners
and for staff promotions into more
senior positions. Robust due diligence
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procedures on vendors, sales agents
and customers can help with external
risks. It is therefore encouraging,
in this respect at least, that 32% of
respondents have increased their
recruitment and exit procedures as
part of their overall approach to fraud
prevention, and organisations are
looking more closely at who they
do business with.
Detection methods
As noted earlier, internal controls
and organisations’ anti-fraud culture,
including fraud risk management,
detected almost two-thirds of the
frauds reported by the respondents
in the UK, which is in line with the
global survey results.
However, a significant proportion
of all frauds reported by the UK
respondents are detected by chance,
including 13% via external tip-off and
12% by accident (see figure 7).
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Furthermore, only 8% of respondents Our survey shows that 51% of UK

reported that their most serious organisations have increased the
economic crime had been detected level of oversight provided by internal
through a whistle-blowing mechanism. audit in direct response to the
Therefore, where formal procedures threat of fraud. However, although
are not already in place, organisations organisations appear to be reacting
need to ensure that formal whistle- in a positive way, the current climate
blowing procedures are developed, has limited the investment/resources
communicated and improved. available to internal audit. And this,

Figure 7: Detection methods

14
Internal audit 17
18

19
Fraud risk management 14
11

8 Corporate
Suspicious transaction 5
reporting 4
controls

3
Corporate security 5
5

3
Rotation of personnel 5
6

13
Tip-off (internal) 16
13

13 Corporate
Tip-off (external) 11
9 culture

8
Whistle-blowing system 7
3

12
By accident 13
7

5 Beyond the
By law enforcement 3
6 influence of
management

‘Seek and you will find’

2
Other detection methods 4
18

0 5 10 15 20
% reported frauds
UK 09 Global 09 UK 07

Global Economic Crime Survey • November 2009 PricewaterhouseCoopers 8

 United Kingdom
in turn, is already proving to be an
obstacle to effective fraud detection.
Our respondents reported that:
• Staff reductions have meant
fewer resources are being
deployed on internal controls.
• Internal audit is being asked
to do more work with less staff,
and that this has contributed to
greater fraud risk.
We consider that management
should be taking a broader view –
particularly where internal audit’s
fraud detection capabilities are
concerned.
In particular, one aspect that
organisations may wish to consider,
is whether they should be
implementing new technologies,
such as computer data mining and
data interrogation, to increase their
fraud detection rates even further.
Only 5% of respondents reported
that their most serious economic
crime in the past 12 months had
been detected by law-enforcement
agencies/regulatory authorities.
Mirroring this is UK respondents’
attitudes with 40% considering
measures adopted by regulatory/
Global Economic Crime Survey • November 2009
law-enforcement bodies to be
‘ineffective’ or ‘not very effective’,
which is in line with the global results.
This suggests that the agencies in
question need to be more involved
with the organisations they govern.
Further analysis shows that the
problem goes deeper. Only 17%
and 30%, respectively, of respondents
in the UK reported that their ‘actions’
taken against internal and external
perpetrators, included notifying
the relevant regulatory authorities.
Therefore it is clear that the
improvement of communication
that is needed will have to be a
two-way process.
Fraud and its components
Types and costs of economic crime
UK Organisations experience asset
misappropriation and accounting
fraud more than any other type
of fraud, consistent with our
findings in our previous survey.
Seventy-seven percent of UK
organisations, that were victims
of economic crime, reported falling
prey to asset misappropriation and
40% to accounting fraud in 2009
(see figure 8).
Figure 8: Types of economic crime
Asset
misappropriation
Accounting fraud
Money laundering
IP infringement
Bribery and
corruption
3
Illegal insider
trading
4
Espionage
1 and junior management respondents
3 in the UK believe that employee
Market fraud involving 1
cartels colluding to
fix prices 3
1
Tax fraud
5
0 10 20 30 40 50 60 70 80
% reported frauds
UK
Interestingly, money laundering was
reported as the third most common
form of economic crime suffered in
the UK (16%), marginally higher than
intellectual property infringement
fraud. In the financial services sector,
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respondents reported an alarmingly
high incidence of this economic
77
crime, with almost half of the
respondents experiencing economic
67
crime in the past 12 months reporting
40
exposure to money laundering. To a
38
degree, this suggests that organisations
16 in the UK are largely compliant with
anti-money laundering legislation,
12
and are therefore reporting regularly
15
and comprehensively to the
15
appropriate authorities.
9
27 When considering the collateral
damage that fraud wreaks on an
organisation, and in line with
our survey’s global results, middle
morale is the area most significantly
impacted. Interestingly, by contrast,
senior executives in the UK believed
that the relations with the regulators
would be impacted most by
economic crime. This divergent
view highlights the conflicting issue
in the UK that those at the top of
Global
an organisation need to be aware
of when considering how the
potential for fraud impacts their
organisation and its stakeholders.
It also emphasises the need for
management to focus on improving
the ‘tone at the top’.
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The cost of fraud is impossible to
quantify with any degree of accuracy,
partly because the full extent of
some frauds are never fully unearthed
and mainly because the collateral
damage resulting from fraud is
intangible. However, 31% of UK
respondents told us that the cost
of fraud had, in their view and
organisation, increased in the last
12 months.
Know your enemy
UK respondents reported that almost
half of all frauds are perpetrated by
external parties, which is consistent
Global Economic Crime Survey • November 2009
with our 2009 global results and
our previous survey in 2007. Fifty
percent of these external perpetrators
of fraud in the UK were reported to
be customers. In contrast to the
majority of industries, the financial
services sector is significantly more
likely to fall victim to fraud by external
fraudsters. Almost two-thirds of
these organisations reported such
an occurrence in the past 12 months.
This is most likely due to the high
levels of customer thefts, such as
mortgage and credit-card frauds,
which go hand in hand with a
recessionary environment.
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Meanwhile, 50% of frauds were PricewaterhouseCoopers
perpetrated internally. This is also Forensic Services
consistent with our 2009 global
results and our previous survey Tony Parton
conducted in 2007. Tel: 020 7213 4068
Email: tony.d.parton@uk.pwc.com
However, the profile of the internal
fraudster appears to have changed Andrew Gordon
in 2009. Middle management has Tel: 020 7804 4187
now emerged as the main perpetrator Email: andrew.gordon@uk.pwc.com
of internal frauds. They accounted
for 47% of internal frauds in the last John Tracey
12 months, compared to 32% in our Tel: 0121 265 5783
2007 survey. From our experience, Email: john.f.tracey@uk.pwc.com
and in line with our survey results,
this fits with the types of frauds we
are seeing which, more often that
not, are linked to their organisations’
financial targets or objectives that
middle management finds itself
subject to.
Our survey also showed that senior
management were responsible for
4% of internal frauds reported by
respondents in the UK. This contrasts
starkly with 14% globally, and 17%
in the UK in our last survey in 2007.
This difference may be due, in part,
to the effectiveness of increased
penalties for senior management
involvement in frauds, including the
irreparable damage to the reputations
of those who are caught, proving
to be an effective deterrent.
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