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
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
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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