Internal fraud on rise in public sector

Financial crime is on the rise in the public sector as increased scrutiny in some areas and cuts as a consequence of the Spending Review in others boost detection rates and opportunities for fraud, says a new report from PricewaterhouseCoopers (PwC).

Some 60% of public sector organisations experienced fraud in the last twelve months, up from 52% in 2009, according to the research. The study also found that internal fraudsters are now reported to be responsible for 53% of detected economic crime, up from 39% in 2009 and more common than external ones (43%).

Ian Elliott, partner, PwC, said:
“An increased focus on costs within organisations may be uncovering scams and frauds that have run for years, but the impact of spending cuts could also be playing a part as loyalty and employee engagement are tested by redundancy announcements and pay freezes.”

PwC says that in these scenarios there is an increased risk of some employees (and sub-contractors) maximising their benefits on the way out through fraud. All in all, some 74% of respondents say the Spending Review has increased the risks of economic crime.

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Economic circumstances have brought extra pressures to public sector workers. PwC economists estimate that those on average incomes in the UK will currently be suffering a ‘squeeze ‘ of over £1,000 annually, thanks to ‘everyday’ inflation running at a higher rate.

The survey of over 110 senior representatives of government and state-owned enterprises indicates that accounting fraud has, for the first time, overtaken asset misappropriation as the number one economic crime in the public sector. Accounting fraud encompasses a variety of actions including accounting manipulations, fraudulent application for credit and unauthorised transactions.

Ian Elliott, partner, PwC, said:
“More opportunities for fraud are created as mid-office functions are stripped away and responsibility for auditing and authorising activity is spread more thinly. To combat this, regular fraud risk assessments are essential to identify the types of frauds likely to occur.”