Firms fear rise in employee fraud due to cost-of-living crisis

According to the report, 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 sociopolitical uncertainties expected to remain, the threat from within is expected to intensify further in the year ahead.

Additionally, an overwhelming majority (78 per cent) of respondents stated that their exposure to fraud has increased since home or hybrid working has become commonplace and three quarters (73 per cent) 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 per cent) or were committed against companies by their own employees (34 per cent) with purely externally generated fraud representing only 31 per cent of the reported frauds.

Overall, eight in 10 mid-sized businesses in the UK experienced fraud in the last five years according to the latest BDO Fraud survey.

The survey found that almost 86 per cent of fraud occurred in 2022 and almost three-quarters (73 per cent) of companies repored that they feel more exposed to fraud since the cost-of-living crisis has taken hold.

The average fraud losses totalled £219,000 and more than a quarter (28 per cent) 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 per cent) of companies impacted said they expect to recover less than £150,000 and almost a third (31 per cent) of businesses estimated recoveries of less than £50,000. Furthermore, only a quarter of firms stated that had fidelity or cyber insurance in place.  

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

Turning to the UK’s forthcoming Economic Crime and Corporate Transparency Bill, more than half of the business leaders surveyed (58 per cent) 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 per cent) 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 per cent), whistleblowing policy (20 per cent), or an enterprise-wide fraud risk assessment in place and only a quarter (25 per cent) conduct fraud awareness training.

Over a third (39 per cent) 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.