Fraud costs UK £85.3 billion per year


A report by accountancy and business advisory firm BDO LLP in Southampton, in conjunction with a Professor at the University of Portsmouth, has found that the UK is losing some £85.3 billion to fraud every year.

The BDO report, titled “Financial Cost of Fraud Report 2013”, is one of the most detailed in the world and based on fifteen years of data, finds that average losses, based on total expenditure, for the period between 1997 and 2007 were 4.57%. However, taking account of data from the five years since the start of the recession in 2008, this figure has risen dramatically by almost 20% to 5.47%. In terms of UK GDP, this implies a total loss to fraud of £85.3bn and on a global basis, a total loss of £2.91 trillion.

The increase in losses reflects a common picture found in previous recessions. Between1980-1981, UK GDP shrank by 6.1% and reported fraud and forgery rose by 9.1%; between 1990-1991 UK GDP shrank by 2.5% and reported fraud and forgery rose by 30.5%.

The good news is that the report quotes examples of where this cost has been reduced by up to 40% within 12 months through initiatives designed to pre-empt fraud. These have included the development of strong anti-fraud cultures, the creation of meaningful deterrents and the revision of processes that remove system weaknesses which provide opportunity for fraud. A 40% cut in the UK losses to fraud would represent around £34bn which is the equivalent of the UK Government’s 2012 budget for Education.

Jim Gee, Director of Counter Fraud Services, BDO LLP commented:

“Fraud remains a challenging and expensive problem, and its economic effects are clear – affected public services, less financially stable and profitable companies, reduced job security and lower disposable incomes for us all. The financial crisis, where fraud has risen significantly, has clearly provided the ideal conditions in which fraud can grow.”

Professor Mark Button, Director of the Centre for Counter Fraud Studies at the University of Portsmouth and co-author of the report, said:

“A key first step in solving this problem of fraud is to understand the nature and scale of it. This report shows its true scale, both in the UK and globally. Research has an important part to play in this and we are pleased to match BDO’s practical experience with our world leading database and academic rigour.”

Mike Mason, Director of Forensic Accounting at BDO Southampton and a Barrister, comments that he is increasingly being called in by companies and institutions to investigate fraud after it has been taken place. Mike observes that the defrauded business seeks three things:

1. For the fraudster to be punished;

2. Financial restitution for the business, and

3. An improvement in the accounting and control systems that allowed the fraud to take place in the first place.

Mason explains: “As forensic accountants we can usually assist with all that the client requires and are often successful in this, but it is so much better for the business to have prevented the problem happening in the first place by putting in place the necessary pre-emptive measures. Now is the time for businesses to consider how they can best protect themselves against fraud because the costs of failing to do so can be considerable.”