Pattern recognition – who commits fraud?

The dearth of meaningful statistics on fraud in the UK, has prompted BDO Stoy Hayward to launch its own study, FraudTrack, which seeks to pull out some hard indicia from the data that is available. Its inaugural survey, which covers all reported fraud cases of more than £50,000 in the 2003 calendar year, draws on figures from the Serious Fraud Office, the Department of Trade and Industry, the Metropolitan Police, Public Eye and the national press.

For further information contact Andrew Durant on tel: Although breach of regulations was associated with the +44 (0) 20 7893 2562; email: andrew.durant@bdo.co.uk

Fraud by employees accounted for the highest number of reports last year, which fits with the researchers’ own experience, “Companies typically take more precautions against fraud by external parties (hackers, organised crime, etc) than they do against fraud by insiders.” It is a misguided approach, they argue, since employees and directors are often best-placed to circumvent an entity’s systems and controls. The significant internal threat is borne out by the sums involved: employee fraud cost on average £2.2 million in direct financial losses, second only to breaches of regulations, for which the mean figure was £4.3 million. However, these numbers do not reflect the total pecuniary impact, which can be much higher once charges for the investigation, legal advice, management time, as well as higher insurance premiums, regulatory fines, loss of key staff and customers, and the inability to raise or higher cost of new financing, are all taken into account.