International Fraud Awareness Week (from 17 to 23 November 2024) has now concluded. The awareness week provided an opportunity for global anti-fraud communities and professionals to come together, drawing attention to the challenges posed by fraud and fraud prevention.
The latest Annual Fraud Indicator (AFI) 2023 report estimates that fraud cost the UK economy £219 billion over the last year. This signifies the catastrophic impact fraud can have on organisations and businesses and emphasises the significance of fraud prevention.
As part of International Fraud Awareness Week, Phillippa Ellis and Elen Masters outline fraud’s impact on businesses and how to protect against it.
What is fraud?
According to the National Crime Agency, fraud is the most commonly experienced crime in the UK and ‘accounts for over 40% of crime in Wales and England’. Fraud can occur in various forms and is constantly evolving. Fraud can be categorised as an intentional act of dishonesty designed to secure an unfair or unlawful advantage over another person. Common types of fraud can include cyber fraud, false invoicing, identity theft, procurement fraud and internal fraud.
How could fraud impact businesses?
Fraud can have extensive effects (as above) on businesses, including financial, operational and reputational impacts. The significant ways fraud can affect a business include:
- Direct losses: Fraudulent activities and schemes can result in the loss of substantive amounts of money or assets.
- Indirect costs: When fraudulent activity has taken place, businesses will often have to incur costs to investigate and address
- Legal repercussions: Regulatory bodies may impose fines or sanctions if it is decided that the company has not complied with the necessary anti-fraud measures. A company may also face legal action from victims of fraud including shareholders, suppliers and customers.
- Reputational damages: Being a victim to financial crime can undermine customer confidence in an organisation, leading to difficulty in obtaining and sustaining new business.
Preventative measures to combat fraud
Businesses need to take preventative steps to protect themselves against fraud. As outlined above, a failure to deter fraud can have catastrophic impacts. Businesses should implement various measures to build a strong defence against fraudulent activities. Key measures include:
- Strong internal controls: Having clear financial procedures, strong transaction audits, and distinct roles and duties within organisations can help minimise risks of infiltration.
- Legal Compliance: Those in regulated sectors will have specific compliance requirements as set down by their regulators, but all businesses need to continue to closely monitor developments in legislation. The long awaited Failure to Prevent Fraud offence will come into force on 1 September 2025, and will have significant consequences for affected businesses that do not have their ‘reasonable procedures’ in place to prevent fraud. Find out more on this offence here.
- Employee training: Training that aims to teach employees to recognise indicators of fraud and how to report suspicious activities is crucial. Employees being aware of the risks of financial crime and warning signs can act as a strong preventative measure.
- Cybersecurity measures: Investing in strong IT infrastructure can help protect against cyberfraud. It is also important that GDPR is complied with to protect sensitive information.
- Whistleblowing Policies: A policy that indicates to employees how they should confidentially report suspected fraud, without fear of retaliation, will help increase reporting.
Fraud presents a substantial risk to all businesses and organisations with serious consequences. Proactive measures can be adopted such as strong internal controls, ensuring legal compliance and creating a culture of vigilance. By implementing these measures and seeking legal advice on protecting against fraud, businesses can help safeguard themselves in a developing landscape.
How can we help?
If your business requires assistance or further information on dealing with fraud or financial crime, please get in touch with our Business Crime and Investigations team. Sign up to our ECCTA knowledge hub for more updates.
