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Blog : BOARD TALK

When Lack of A Collective Morality Equates To Hard Cash Loss

Posted on February 12, 2015 at 12:25 PM

While we are still reeling from the revelations around #HSBCLeaks and hypocrisy at the top around the real meaning of corporate governance....


it turns out that losses from fraud in the UK are showing an unexpected increase that bucks the typical cycle of fraud after a recession.


UK businesses and organisations are losing a staggering £98.6 billion to fraud and mistakes every year, according to research from accountancy firm PKF Littlejohn and the Center for Counter Fraud Studies at the University of Portsmouth. 


Their report- The Financial Cost of Fraud 2015 - also reveals that losses increased in 2012-2013 compared to 2010-2011 by 17.8%. This is 29% higher than for the period prior to the recession from 1997 to 2007 - and is an "unexpected increase (that) bucks the typical cycle of fraud after a recession, indicating that new social factors such as reduced adherence to collective ethical and moral norms may be at play."


This report reviewed 382 statistically valid loss measurement exercises published over the last 17 years, covering over £9.76 trillion expenditure. These exercises looked at 40 different types of expenditure in 46 organisations from 9 countries spanning Europe, North America and Australasia. 


"Beating fraud is every company's business. If a business was paying 6% over the odds for its energy and utilities, or rental properties then management would be quick to act or shareholders and investors would want to know why. Fraud is the last great unreduced business cost" says Jim Gee, one of the report's authors and head of forensic and counter fraud services for PKF Littlejohn.


In these current economic times, it will take a brave CEO or Finance Director who turns a blind eye to these findings, adds Mr Gee. PKF Littlejohn and the University of Portsmouth have made available a free, online self-assessment Fraud Resilience tool which you can access here.


He has some interesting thoughts as to why fraud has continued to increase after the recession. Mr Gee speculates that it may be because of greater 'individualisation' ie there is less adherence to collective moral and ethical norms as we all retreat inside our digital devices.


It could also be that processes and systems are becoming more complex making it easier to disguise fraud; there is less face to face contact so fraudsters are more distanced form their victims and less concerned about a response - or controls are just struggling to keep up with the increasing pace of change in business. 


I would argue it could also be because when businesses become disconnected from their employees, inequality grows, and every single day there is renewed evidence of a lack of leadership and accountability at the very top - if you are far lower down why would you give a damn about anything but self-interest ?


Read Will Hutton - British Capitalism Is Broken. Here's How To Fix It. in today's Guardian.



Categories: Measurement, Scrutiny, Ethics