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PKF International

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The Financial Cost of Fraud Report 2015

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The Financial Cost of Fraud Report 2015

PKF Littlejohn in the UK has just published a new report - 'The Financial Cost of Fraud Report 2015' - with the Centre for Counter Fraud Studies at University of Portsmouth (Europe's premier research institute concerning fraud).

The report is based on 17 years of global research concerning the financial cost of fraud - where the total cost (not just what is detected) has been measured in a statistically valid and accurate manner. The report reviews data from more than 380 loss measurement exercises in different countries and across 40 sectors. The total value of the expenditure where the cost of fraud has been measured is £9.76 trillion ($14.7 trillion, €13.02 trillion).

Fraud is a challenging problem. Its economic effects are clear - less financially stable and profitable companies, worse public services, diminished levels of disposable income for all of us, charities deprived of resources needed for charitable purposes. In every sector of every country, fraud has a pernicious impact on the quality of life.

Rapid changes have taken place in countering fraud over the last 15 years. It used to be thought that the only thing to be done was to hope that it wouldn't happen and then to react when it did (after losses had been incurred) with an investigation followed sometimes by litigation or a prosecution.

Litigation or a prosecution can still be important but in 2015, only taking a reactive approach seems rather old fashioned. This Report takes the debate much further forward.

It shows that the financial cost of fraud and error can be accurately measured in the same way as other business costs; it shows that this is not unnecessarily costly or difficult; and most important, it shows what the financial cost is likely to be.

More than two thirds of the exercises we reviewed showed fraud related losses of more than 3% of expenditure, with the 17 year average running at 5.6% and average losses rising in the last two years by almost 18%. The research also shows that most of the cost of fraud is high volume, low value and that there are therefore low detection rates, making a purely reactive approach unlikely to succeed.

The evidence revealed in the Report shows that these losses can be, and have been, reduced by up to 40% within 12 months, where organisations seek to measure and pre-empt fraud. This provides a real opportunity in difficult economic circumstances. Private companies can gain a competitive advantage if the cost of fraud is reduced; public expenditure reductions can be less painful; and the charity sector can increase the resources it has available to deliver on important charitable purposes.

Fraud is the last great unreduced business cost, and the Report shows just how significant that cost is. The PKF Littlejohn Forensic & Counter Fraud Services team specialise in helping clients to better protect themselves against fraud so that the cost of fraud is reduced, delivering financial benefits which are a multiple of our fees.

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