The report also found that in the UK:
- Cybercrime is the biggest fraud risk of the future with 53.5% of UK organisations believing that they are at risk from cybercrime. Moreover 83% of UK organisations believe that the risk from fraud will be the same or greater in the future.
- 39% of UK organisations said they had not reported frauds to the authorities.
- Only 15% of UK organisations have successfully recovered more than 50% of their losses from fraud, perhaps reflecting the higher incidence of internal frauds where the value of damages is often difficult to establish.
- 62% of UK organisations accept that it is management’s responsibility to prevent and detect fraud, compared to about 50% across Europe.
- 50% of UK organisations uncovered fraud through a tip-off, far more than in continental Europe where only 28% of organisations said that fraud was detected through tip-off. This may reflect the establishment of more effective corporate governance procedures in the UK.
The assessment of fraud in the UK is part of the PwC “European Economic Crime Survey – 2001” which analyses the scale, impact and corporate perceptions of European fraud. The research, which was based on interviews with over 3400 companies, not-for-profit organisations and government bodies in 15 Western and Central European countries, revealed:
- Fraud is estimated to have cost 536 of the leading European companies interviewed at least €3.6 billion in the last two years alone, a loss compounded by the fact that only 1 in 5 companies who fell victim to fraud recovered more than half of their lost assets and over half the companies surveyed are not insured against fraud.
- At least 43% of major European companies have fallen victim to fraud during this time and a third of all companies believe that they are at greater risk to fraud today than 5 years ago.
- More than any other type of fraud, companies and organisations are most concerned about cybercrime: 43% of organisations rate cybercrime as the number one fraud risk of the future. Already across Europe of those companies that had been a victim of economic crime in the last two years, 13% stated that cybercrime was one of them.
- Frauds committed by individuals within the organisation are more common than those frauds perpetrated externally. Embezzlement, or theft by an employee, has been the most prevalent type of corporate fraud in the past two years with 63% of companies that suffered reporting incidents of embezzlement.
- Of those frauds detected, 58% are uncovered by accident or chance – revealing the inadequacy of many company control systems in highlighting and detecting fraud. Compounding this risk, although half of all companies believed that responsibility for the detection of fraud lies with the board of directors, only 22% provided specific fraud related training to management.
- Prevention of corporate fraud is no better: 80% of companies who have been victims of fraud remain confident of their control systems, despite the high incidence of over-all fraud rates and the apparent ineffectiveness of existing anti-fraud procedures.
- Whilst almost 50% of organisations have a policy to report all economic crime to the authorities, only 38% have actually pressed charges. This highlights the fact that that for many companies the associated consequences of fraud (negative publicity, a drawn out judicial process and small chances of prosecution and recovery of stolen assets) can be as damaging as the financial loss itself. A higher proportion of organisations in Central Europe would report all incidences of economic crime to the authorities reflecting the greater role of the state in commercial life than in the West.
The survey also highlighted the non-financial damage from fraud: 36% of organisations felt that fraud had a negative impact on staff morale; 16% believed that fraud hit an organisation’s brand. Although the direct relationship between economic crime and share price performance is complex, the fact that fraud can impact negatively on so many of the critical factors driving corporate performance (staff morale, business relationships and branding) highlights how fraud can affect enterprise value over the long term.