Ever thought fraud was something that happened in other companies? That you have a good workforce, a thriving business, effective anti-fraud controls and regular audits? Well you’re not alone. Only 17% of companies questioned as part of the biennial 2007 PricewaterhouseCoopers global economic crime survey believed they would be victims of fraud. Regrettably, 48% of UK companies can expect to be hit by economic crime.

This complacency among UK business is not a new phenomenon, but stems from a lack of understanding of the scale of the problem facing UK plc. Businesses suffering fraud in this country were, on average, hit 15 times in the past two years, which is twice the global average and three times that of western Europe.

Not only are businesses suffering more frauds than other members of the global business community, but it is costing them more than ever. Since the 2005 survey, the direct cost to UK businesses affected by fraud has doubled from £0.8m to £1.75m. So, faced with a costly bill, and a one-in-two chance of being struck by economic crime, it is high time business heeded the wake up call to the true size of the problem. What’s more, a high proportion of companies report significant collateral damage such as share price falls, costs of dealing with the regulators and serious damage to staff morale.

What’s pushing business to address the issue? Despite legislation such as the Fraud Act and Foreign Corrupt Practices Act (FCPA], fraud remains a dirty secret for many organisations. Concerned about the inherent reputational damage, very few cases ever go to court. This is not, in itself a problem, as long as business takes the threat sufficiently seriously.

If the shock value of the potential damage to the bottom line was not significant enough, the prohibitively strict US regulatory environment has undoubtedly ensured companies engaged in international business are forced to think again about their approach. Faced by Sarbanes-Oxley and the SEC’s vigorous investigation and punishment of white-collar crime, companies have been paying close attention to their anti-fraud regime. Of the respondents in the PricewaterhouseCoopers survey, 94% cite Sarbanes-Oxley as a motivation for introducing anti-fraud measures.

The deeper you dig

However, have any of these incentives to act on fraud actually had an impact? Businesses have undoubtedly stepped up their anti-fraud measures. The GECS revealed that UK businesses average ten anti-fraud controls per company, higher than elsewhere on the continent or, indeed, globally. But here’s the paradox: the more controls that are implemented, the more that is detected. To reduce fraud, companies need a robust ethical culture and adopt a zero tolerance position.

While it is positive that UK Plc leads the world in implementing self-imposed, anti-fraud measures, it is important that this vigilance is as cost efficient as possible. If we take whistleblowing systems, 21% more respondents now have them in place than in 2005, yet only 51% of companies reported them as effective. When compared with the financial and reputational damage resulting from falling victim to fraudsters, it is evidently a price worth paying.

As fraud is on the rise, businesses need to question if they face a different threat, or more of the same. White-collar criminals are still largely relying on the classic offences and asset misappropriation remains the most common type of fraud, with 77% of victim businesses hit by this particular crime. Accounting fraud affected 40% of businesses, while intellectual property infringement [32%] and money laundering [20%] remained prevalent.

But there’s a new crime on the rise in Britain and it is international in scope. Incidents of corruption and bribery, traditionally viewed as an emerging markets issue, have doubled since the PricewaterhouseCoopers 2005 survey. One-in-ten companies reported they had lost a business opportunity to a bribe-paying competitor. This trend is worrying and will be an area that business will need to pay close attention to in the future. A one-size-fits-all approach to anti-fraud controls will not work ­ companies need to understand their fraud risks in the emerging markets. Many appear not to be doing so.

Knowing the types of crime to watch out for doesn’t help if you’re unsure who to look for. The average white collar criminal is now younger, better educated and often non-managerial, and highlights one inescapable aspect of economic crime; that responsibility lies with people. Pre-employment screening is one measure which can be taken to ensure the trust-worthiness of new staff, as well as engaging short-term workers, who form an increasing proportion of the workforce, in an anti-fraud culture. This cultural change, however, must start at the top, providing the right culture from management to ensure behaviour at all levels is beyond reproach.

Emerging risks

Introspection is essential for UK business to beat fraud, but with an increasingly globalised business community, one eye must also be kept on trends further afield. The rise of corruption and bribery demonstrates the impact of emerging markets on UK economic crime and is further underlined by the fact that the PricewaterhouseCoopers survey found that 49% of UK fraud cases involved an overseas party. Despite this, 30% of UK companies have no specific action planned to mitigate the risk. There are no quick solutions to this problem and businesses cannot afford not to trade with these emerging economies, so the best solution is to ensure effective fraud risk controls and ethics are observed.

Economic crime is a constant battle, yet the signs are encouraging with attitudes toughening and business looking to actively take steps to beat the criminals. However, fraud is rising and there are question marks over the effectiveness of some measures taken, which means that complacency among the majority has to be challenged. UK business must be better educated about the problems and their solutions and be prepared to take the fight against fraud forward, particularly in their operations overseas.

Don’t be a business victim

●Tone at the top – set the right example at board level

● Prevention is better than cure – invest in fraud risk controls measures before it’s too late

● Ensure clear processes for reporting suspicions –whistleblowing hotlines are one option, but, whatever you do, make sure it is well publicised

● Carry out pre-employment screening on new staff – you want to be certain you’re employing the person the CV recommended

● Vive la différence – consider cultural differences and the impact these have on anti-fraud controls when operating in the emerging markets

Tony Parton is a forensic services partner at PricewaterhouseCoopers LLP