UK businesses report significant increase in fraud awareness after introduction of the Economic Crime and Corporate Transparency Act
BDO, in partnership with Censuswide, has released the 2024 BDO LLP Fraud Survey, providing valuable insights into the fraud issues faced by UK corporate entities. The survey involved 500 directors and business owners from entities with 200 or more employees. This survey complements BDO’s long-running FraudTrack publication by offering current fraud-related experiences direct from the business community.
The number of entities that had suffered fraud incidents during the last five years has significantly decreased. The survey revealed that 42% of businesses experienced fraud, a notable drop from 83% the previous year. Additionally, the occurrence of multiple fraud incidents reduced from 49% to 15%.
In terms of fraud reduction, 46% of businesses reported less fraud than last year, while only 9% saw an increase. There were variations in fraud rates across different sized businesses. Smaller businesses (200-499 employees) reported lower fraud rates, with only 27% experiencing fraud in the last five years. This contrasts with 81% of larger businesses (1500-2000 employees) and 60% of those with 2000 or more employees reporting fraud.
The proportion of fraud that was externally perpetrated increased to 42%, up from 31% last year. Conversely, internal fraud and fraud involving collusion decreased by 3% and 8%, respectively.
View our Fraud Survey Analysis
What types of fraud are most common?
The most common type of fraud incident suffered, by nearly a quarter of businesses (23%), was financial statement fraud, a fraud type which can often have the largest impact on an entity. Corruption and money laundering each accounted for 20% of fraud cases. Tax fraud made up 19% of frauds and asset misappropriation remains a problem, experienced by 18% of respondents, particularly in sectors with valuable stock and liquid assets.
The most common level of fraud losses experienced by businesses surveyed was 1-4% of turnover, but higher levels were found in certain sectors. In the Charity sector, 80% of organisations reported fraud losses of 5-9% of turnover. In the Health Care and Social Assistance sector, 33% reported fraud losses of 10-14% of turnover and in the Professional, Scientific, and Technical Services sector 22% experienced fraud losses in the 20+% range.
Whistleblowing is the most common method of fraud detection, accounting for 19% of cases. Internal detection methods can be an effective way for businesses to highlight bad practices quickly and efficiently. The four core internal fraud detection methods of internal controls - internal auditing, internal fraud teams and internal whistleblowing - accounted for 50% of the detection methods that identified the frauds in our surveyed entities.
Recovery of amounts lost to fraud remains a significant challenge, with 58% of businesses expecting to recover less than 10% of their fraud losses by value.
Preparing for the forthcoming “failure to prevent” fraud legislation the Economic Crime and Corporate Transparency Act (ECCTA)
When asking businesses about preparations for the forthcoming “Failure to prevent” fraud legislation (ECCTA), respondents said that anti-fraud expenditure had increased, with 63% of businesses recording higher spending. Fraud awareness among employees has increased to 43% since the introduction of ECCTA.
Cybersecurity measures have also seen a boost this year, with 17% of businesses increasing IT security investment and 14% taking specific steps to ensure their business data was more secure. New cyber threats continued to arise and 10% of surveyed businesses had already been targeted by fraudsters using Deepfake clones.
The 2024 BDO Fraud Survey highlights both the challenges and improvements in fraud prevention and detection among UK businesses. While fraud remains a significant concern, the declining trends and increased awareness reflect the efforts businesses are making to combat fraud. Continued investment in robust fraud prevention measures and employee training is essential to protect businesses from new and evolving threats.
Commenting on the findings, Stephen Peters, Head of Investigations at BDO LLP said: “Fraud remains a significant problem for individual businesses and the wider economy. It is noteworthy that over a third of surveyed businesses estimate that their fraud losses are 5% of turnover or higher. These losses directly impact profitability and can therefore have catastrophic knock-on effects. This is consistent with the scale of issues we regularly see when conducting investigations.
However, this year there are some definite positive trends within the data. Nearly half of the businesses surveyed experienced less fraud than the previous year, and over three-quarters have started preparing for the new failure to prevent fraud offence.
This is encouraging. We hope the coming year will see all businesses enhance their anti-fraud infrastructure, continue the drive to establish more robust preventative regimes, and proactively monitor and respond to new threats as they arise.”
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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