Public sector bodies "face growing fraud risk"

Job losses and the fear of redundancy are the main factors behind the looming threat, according to a survey by accounting firm PricewaterhouseCoopers (PwC).

Over half the UK respondents (52 per cent) said their organisation suffered economic crime in the last 12 months compared with a global average of 32 per cent.

Of these, 80 per cent reported the theft of assets, including cash or equipment or supplies, while four in 10 reported incidents of financial statement fraud.

Both of these measures are markedly higher in the UK than the global average.

Richard Neave, forensics director, PricewaterhouseCoopers LLP in Scotland, said: "Over the last few years, we have clearly seen the direct effect of economic pressures on peoples' ability to rationalise fraudulent actions - neither the private nor the public sector are immune.

"With cuts threatening the pace of recovery in Scotland and a looming public sector recession we cannot ignore the fact that these pressures are going to be felt sharply in the coming years."

The new Government announced a range of cuts in the recent emergency Budget aimed at tackling the UK's 155 billion annual deficit.

More than 170 senior representatives in 35 countries around the world took part in the survey, including 44 in the UK.

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 as staff reductions mean fewer resources being spent on internal controls and internal auditors are being asked to do more with less.

"Risk and compliance systems have been impacted by diminished investment and tightening budgets in many organisations," Mr Neave added.

"This opens the door for internal and external fraudsters to exploit weaknesses.

"Organisations need to act now and ensure they have regular reviews and the right fraud policies in place."

Organisations which suffered economic crime in the UK reported that 52% of perpetrators were external. This compares with 39% globally.

Fraud is mainly perpetrated by more junior members of staff in the public sector, the report finds, although this may change as austerity cuts begin to bite.

Linking pay to performance is also likely to be a driver of fraud, with the report finding that organisations with this pay structure for senior executives are almost twice as likely to have reported fraud (44 per cent) compared with those that make no link (27 per cent)