Recession causing ‘cappuccino crime wave’

BRITAIN is in the grip of a ‘cappuccino crime wave’ as the number of middle managers defrauding their bosses to maintain living standards rises.

According to research by accountants PricewaterhouseCooper (PwC) accounting fraud is the fastest growing economic crime experienced by organisations and the world.

The Global Economic Crime Survey found nearly half of organisations in the UK had experienced some form of economic crime in the last 12 months. Asset misappropriation (suffered by 77% of organisations reporting economic crime) was the most common followed by financial statement fraud (40%).

Reports of accounting fraud have more than tripled in the UK rising steadily from just 11% since the first edition of the report in 2003.

And there is strong evidence that economic pressures are driving trends in financial statement fraud.

In the UK, fear of losing jobs (46%) is cited as the biggest contributing reason why fraud is committed, followed by targets being more difficult to attain (40%) and difficulties reaching the performance numbers to achieve bonuses (28%).

Another notable feature of the findings is the rapidly changing profile of the internal fraudster. Some 47% of all economic crimes in the UK were perpetrated by middle managers as opposed to junior or senior staff – up from 32% in 2007.

Large organisations report the most fraud with 46% of those with over 1,000 employees reporting incidents in their businesses.

The most affected industries are communications (46%), hospitality and leisure (42%), financial services (44%) and insurance (45%) with the public sector in sixth place.

A recent case in Yorkshire involved the theft of company funds by a middle manager who was a long serving employee and had built up the trust of the directors of the business over a number of years.

As a result, the manager had the ability to make payments up to a threshold without additional checks.

While the person was on holiday a colleague identified several payments which looked odd and decided to investigate.

PwC was called in to help and the investigation found that the fraud covered an eight year period and totalled nearly £1m.

Cash and cheques had been stolen, personal expenses had been charged to a secret company credit card and electronic payments had been made into the middle manager’s personal bank account.

Much of the stolen funds had been used to pay for an expensive lifestyle. PwC worked closely with a local law firm to recover a large part of the stolen funds and the company decided to prosecute.

Fran Marwood, director and leader of fraud and investigations in the North, PwC, said:

“We are in a perfect storm of economic crime right now with increased pressures and opportunities to commit fraud accompanied by fraudsters’ growing ability to convince themselves their actions are defensible.

“Fraudsters can come from anywhere, but those feeling the tightest financial pinch are more likely to get involved. Middle managers on middle incomes may have stretched themselves with high mortgage repayments or school fees and are now facing pay freezes and less certain prospects for future employment.”

A striking 70% of UK respondents believe their organisation is at a greater risk of economic crime in the current economic environment, compared to only 40% globally.

However, this feeling of exposure and risk is not translating into action. Only half of UK organisations have reviewed anti-fraud policies in the last year and only a quarter have amended processes and controls.

Mr Marwood said that would change “very soon”.

“Increased regulatory and enforcement actions are on their way to the UK, not least in the form of the new Bribery laws which were announced in the Queen’s speech this week and are likely to be enacted next year,” he continued.

“UK organisations need to act now or pay later when it comes to these more robust procedures to prevent bribery both at home and overseas.”