PwC warns of public sector crime

WITH the UK public sector recession now under way, PricewaterhouseCoopers (PwC) is warning of the increased risk of fraud in the public sector as staff reductions and fears of redundancy increase the risk of fraud and economic crime.

Today’s report, ‘Fraud in the public sector’, analyses the responses of senior representatives from government or state owned enterprises across the world, including 44 from the UK.
 
More than half – 52% – of UK respondents said their organisation had suffered economic crime in the last 12 months compared to a global average of 32%.
 
Of these, 80% reported asset misappropriation and four in ten reported incidents of financial statement fraud. Both of these measures are markedly higher in the UK than the global average, the report suggests.

A majority of UK respondents reported increases in levels of economic crime over the last 12 months, and most believe their organisations are at greater risk in the current economic environment.
 
There is increased vulnerability in this area as staff reductions mean fewer resources being spent on internal controls and internal auditors are being asked to do more with less.

Tony Parton, forensic services partner at PwC, said: “Our experience tells us that economic pressures have a direct effect on people’s ability to rationalise fraudulent actions. And we know for a fact that these pressures are going to be felt sharply in the public sector in the coming years.

“Our report also finds that public sector fraud has a disproportionately negative effect on reputation, employee morale, business relationships and relationships with regulators. Organisations need to make sure that they have regular reviews and the right fraud policies in place.”

The report is based on the public sector extract of the PwC Global Economic Crime Survey (GECS).
 
Comparison with the private sector sample shows how the UK public sector has greater exposure to external fraudsters, with over half reporting the outside world as the source of economic crime.
 
Another difference is the profile of internal fraudsters.
 
The GECS shows how the private sector has recently seen a big rise in middle manager fraudsters but, in the public sector, fraud is mainly perpetrated by more junior members of staff.