It may be a discomforting thought, but there’s no escaping the fact that
about 2p out of every retail pound you spend is subsidising retail theft.
Whether it’s an employee pilfering from the back room or a customer helping
him or herself to a five finger discount, shop theft is ultimately a crime we
all pay for.
In the broader financial world it’s not so cut and dry. The cost of fraud is
not just bourn by the customer but also by shareholders and even employees, who
are refused pay rises because of the unexpected cost of an internal fraud.
And then there are the hidden costs internal investigations, legal
proceedings, fraud detection measures.
Shop theft hit the headlines when actress Winona Ryder was found guilty of
stealing $5,500 (£3,416) in merchandise from a Beverly Hills Fifth Avenue store
in November 2002.
Perhaps an equivalent in the corporate world was the Daiwa Bank fraud, when
bond trader Toshihide Iguchi lost more than $1bn in about 30,000 unauthorised
trades over a ten year period.
Iguchi was jailed in 1996, but the cost of the fraud was pinned on the bank’s
executives who, in 2000, where ordered to pay $750m (£465m) after an American
court found, ‘the risk management mechanism at the [New York] branch was
effectively not functioning’. The executives said at the time they would appeal
BDO Stoy Hayward partner Simon Bevan believes corporate crimes in the present
day could be flying under the radar as companies slash their anti-fraud budgets
in reaction to the recession.
He says internal monitoring programs where being cut back along with,
‘anything that has to do with back office and controls’.
He says: ‘They are gambling. They believe a nightmare scenario will never
happen to them but, if it was my company, it is not a risk I would take.’
It comes at a time when fraud is spiking at record levels. BDO last week
released a study that put the nation’s reported fraud cost during the last six
months at £960m.
To put this in perspective, during 2008 the nation wasted £3.3m a day on fraud;
this year that figure has risen to £5.3m.
If Bevan’s predictions are correct, the total fraud cost will peak at £3bn by
the end of the year.
The situation has been made worse by the fact that job losses seem to be
coming from middle management the workers who are most likely to detect fraud.
KPMG partner Hitesh Patel, who works in forensics, says it is middle
management that generally enforces anti-fraud policies.
‘Companies forget one critical point that when they are reducing head
counts, they go for middle management. Middle management are the ones doing the
checks and balances,’ he says.
Patel is blunt when asked who ultimately foots the bill for corporate fraud.
He says: ‘We will all end up paying increased prices, increased insurance
costs, increased taxes, if it’s the public sector. And we all tend to suffer.’
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