The severity of the planned cuts in public sector spending could lead to an increase in fraud, according to forensic services experts at PwC in the Midlands.

The heightened risk of fraud, arising from employees and suppliers suffering financial pressures as a result of redundancy or contract termination, could go unaddressed by public sector organisations as a result of there being fewer resources available to detect and prevent fraud. The heightened risk of fraud in the public sector has been highlighted in a report published by PwC entitled Navigating Your Way Through Stormy Waters.

At a recent Fraud Academy event in the Midlands hosted by PwC, less than 10% of public sector organisations in attendance said that they had completed a fraud risk assessment and they could be exposed to a higher risk of fraud as a result. According to the firm's forensic services experts, many organisations in the region would benefit from practical guidance to help them to decide how and where to focus their limited resources in the fight against fraud.

John Morris, director and forensic services expert at PwC in the Midlands, said:

"Given the severity of the planned cuts in public sector spending, there are likely to be significant reductions in staffing costs, termination or scaling back of programmes, streamlining of systems and ceasing of activities in many areas of government. Such changes will have undoubtedly impact on public sector workers and the private sector companies that rely on the public sector economy for a large proportion of their business. 

"When the livelihood of an individual or the survival of a company is jeopardised, our experience is that rationalising fraud becomes easier in the mind of the would-be fraudster. When considered alongside the risk that opportunities to commit fraud will increase because of the expected changes in government structures, resource limitations and diverted management focus, the likelihood of a significant increase in internal and external fraud against the public sector is a real threat."

Alongside basic recommendations for fraud controls and monitoring, the report covers some of the emerging techniques for fraud detection. For example, data analytics is increasingly applied to find hidden patterns in data within financial systems, which may indicate fraud.