Economic crime remains on the rise as business and public sector organisations in the Midlands and elsewhere across the UK struggle in the face of economic austerity and spending cuts, according to the findings from PwC's latest global economic crime survey (GECS).

Over half  (51%)  of  the UK  respondents to the GECS, the most  comprehensive study of economic crime in the business world,  reported at least one instance of economic crime in the last 12 months, compared with the  global figure of 34%. Perhaps more worryingly nearly a quarter of UK respondents said they'd experienced more than 10 incidents of economic crime during the year.

The survey  findings suggest that the combination of rising economic crime in the UK, and widespread austerity spending cuts  that limit the resources available to focus on economic crime, has made today's business environment altogether more difficult and risky. Although one reason for the higher levels of economic crime reported in the UK might be that more respondents are carrying out fraud risk assessments, so they're better equipped to identify it.

Since the last survey carried out in 2009 the proportion of UK respondents reporting the cost of fraud to be between $100,000 and $5 million has risen by 11%. The proportion reporting the cost to be more than $5 million has risen by 3%, suggesting that overall, the actual cost of fraud for most organisations is rising. The true costs could be much higher, given the proportion of frauds that are likely to have gone undetected.

Cybercrime

Cybercrime has become the third most common type of economic crime in the UK, while levels of 'conventional' economic crime have fallen (e.g. asset misappropriation fell by eight percentage points compared with our last survey in 2009, and those reporting accounting fraud by 5%).

John Tracey, partner and forensic services expert at PwC in the Midlands, said:

"The fact that 26% of those who experienced an economic crime in the last 12 months reported a cybercrime is particularly alarming. This is a dramatic finding and marks the promotion of cybercrime to the premier league of fraud. As well as direct financial costs, there are other commercial consequences of cybercrime, such as reputational/brand damage, poor employee morale or service disruption.

"Worryingly, almost four in ten respondents say their organisation doesn't have the capability to prevent and detect cybercrime and senior executives need to take these risks more seriously."

Internal v. external fraud

The majority of UK respondents saw fraud coming from outside their organisation, yet over a third found their own employees were responsible for the largest frauds, showing a change in sentiment from the 2009 survey, and also differing from the global response, which indicated more internal than external fraud.

John Tracey, partner and forensic services expert at PwC in the Midlands, said:

"During a downturn, the 'corporate core' of an organisation tends to be hit the hardest, with severe resource cutbacks in areas that are the first and second line defences against fraud, like internal audit. Under-staffing and increased workloads might mean that internal fraud's going undetected."

Who are the fraudsters?

The typical fraudster committing an internal fraud in the UK is most likely to be: male, aged between 31 and 40, educated to below degree level and having worked for three to five years in the organisation. The global and UK profiles in 2011 are very similar. The main difference is that the UK fraudster is likely to be less educated: global fraudsters are likely to have at least a first degree.   Respondents in the UK also tended to describe their fraudsters as middle management rather than senior executives.

John Tracey, partner and forensic services expert at PwC in the Midlands, said:

"There's a significant 18% rise in the proportion of internal frauds carried out in the UK by middle management since we first reported a 'cappuccino crime wave' in 2009.

"In 2011 48% of respondents who noted their most significant fraud as internal estimated their costs to be in excess of $100,000, up by 12% since 2009. Put bluntly, this suggests that not only are middle managers responsible for more internal fraud, but this crime is also costing their organisations significantly more."