Public bodies face economic crime growth as cuts bite

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 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 those, 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 those measures are markedly higher in Britain than the global average.

PricewaterhouseCoopers LLP forensics director in Scotland Richard Neave 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." More than 170 senior representatives in 35 countries around the world took part in the survey, including 44 in Britain.

A majority of respondents from Britain 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.

Organisations which suffered economic crime in Britain reported that 52 per cent of perpetrators were external – compared with 39 per cent globally.

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

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