Businesses struggling to recover fraud losses as exposure to financial crime intensifies

Eight in ten mid-sized businesses in the UK experienced fraud in the last five years, with almost 86% of those occurring in 2022 and almost three quarters (73%) of companies reporting that they feel more exposed to fraud since the cost-of-living crisis has taken hold.

BDO’s Fraud Survey, which monitored trends at 500 mid-sized UK firms throughout 2022, found that average fraud losses totalled £219,000, and that more than a quarter (28%) of businesses that reported experiencing fraud in 2022 fell victim to fraudsters on more than one occasion during the year.

While the average value of fraud incurred is significant, the majority (73%) of companies impacted said they expect to recover less than £150,000, and almost a third (31%) of businesses estimating recoveries of less than £50,000. Furthermore, only a quarter of firms stated that had fidelity or cyber insurance in place.  
 

New fraud risks emerge but the threat from within continues

Changes in working patterns continue to impact current fraud threats and whilst some of the fraud risks associated with the COVID-19 pandemic are subsiding, other new threats have arisen. The exposure to employee generated fraud remains a core concern for many businesses and with the impact of the cost-of-living crisis and current socio-political uncertainties expected to remain the threat from within is expected to intensify further in the year ahead.

Our survey found that the overwhelming majority (78%) of respondents stated that their exposure to fraud has increased since home or hybrid working has become commonplace, and three quarters (73%) reported that they feel more exposed to fraud since the cost-of-living crisis has taken hold. Most of the reported frauds involved either collusion between internal and external individuals (35%) or were committed against companies by their own employees (34%), with purely externally generated fraud representing only 31% of the reported frauds.

A related concern is that despite the prevalence of fraud, most companies (66%) said economic conditions will limit their investment in fraud detection and prevention tools over the next 12 months.
 

Fraud: the new corporate criminal offence?

Turning to the UK’s forthcoming Economic Crime and Corporate Transparency bill, more than half of the business leaders surveyed (58%) agreed or strongly agreed that the government should introduce a new corporate criminal offence for economic crime such as fraud, compared to just one fifth of respondents (22%) who did not support the measure. Under the current proposals, it will be made easier to prosecute companies for fraud because prosecutors will only need to demonstrate that an organisation lacked “reasonable” or “adequate” controls to prevent the wrongdoing of its leadership or staff.

These latest legislative developments to make failure to prevent fraud a corporate criminal offence reinforce the need for organisations to re-evaluate their internal controls and fraud risk assessment processes to minimise their exposure to financial crime. However, our survey indicated that many businesses may be insufficiently prepared. Only one fifth of firms have an anti-fraud policy (21%), whistleblowing policy (20%), or an enterprise-wide fraud risk assessment in place and only a quarter (25%) conduct fraud awareness training.

Over a third (39%) of companies also said that the level of fraud awareness among employees had decreased since the previous year. These figures suggest many businesses are behind the curve in ensuring they have adequate procedures in place and are leaving themselves vulnerable both to fraud and potential corporate culpability.
 

Helping companies minimise the impact of fraud

We can support your business in detecting and preventing fraud and financial crime. We understand the specific risks relevant to your business, and can help you develop best practice procedures and solutions to protect against the threat of economic crime. If you suspect that your business has been a victim of fraud, we can conduct rapid response forensic investigations and provide proactive advice on crisis management.

To implement proactive fraud prevention for your business or investigate a live issue, contact a member of our Forensic Accounting team.

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Key contacts

Kaley Crossthwaite
Partner - Forensic Accounting and Valuation Services
kaley.crossthwaite@bdo.co.uk
 

Richard Shave
Director – Forensic Accounting and Valuation Services
richard.shave@bdo.co.uk
 

Karen Bailey - Edwards
Senior Manager – Forensic Accounting and Valuation Services
karen.edwards@bdo.co.uk