Fraud Prevention Low Priority For Private Equity Firms, Grant Thornton Suggests

by Jason Gorringe, Tax-News.com, London

05 June 2008

Just 37% of private UK companies employ specialists to detect fraud, compared with a global average of 45% and 59% in the US, according to new research released as part of Grant Thornton's annual International Business Report.

Grant Thornton went on to reveal that just 7% of businesses questioned said that they had increased staff involvement in fraud prevention in the past 12 months, one of the lowest rates in the world.

The number of people involved in anti-fraud activity has increased by 12% globally, the poll further stated.

The survey covered 7,400 owners and senior managers in 33 countries, including 600 in the UK.

Phil Crooks, Head of Assurance Services at Grant Thornton, observed that it was a well documented fact that in times of economic downturn fraud tended to increase, and the figures should be a wake-up call for both the accounting industry and business owners that fraud prevention must be a greater priority. He explained that:

"History shows that fraud is more prevalent when times are hard. Prevention is better than detection, and preventative measures must be tailored to each business's needs. The coming 12 months will be a good indication of whether the UK has been complacent, or has matched the threat with the appropriate level of resource."

In another recent Grant Thornton survey of UK audit partners, internal controls were deemed the most common fraud detection measure, but it seems that many UK companies are still not heeding this advice.

"People often associate fraud with the theft of cash or assets, but it is far more common to see accounting fraud caused by managers under pressure to deliver a certain result - beyond trying to protect their job these fraudsters do not actually steal the business's assets, although this can still have damaging effects in the long run as fellow management and owners may not be seeing the full financial picture," Crooks continued.

Globally, the Philippines is the most fraud conscious, with 72% of private firms having an audit specialist.

Conversely, Japan and Denmark apparently have the least resources dedicated to the prevention and detection of fraudulent behaviour, with just 17% of businesses having dedicated staff resources to actively preventing fraud.

Ken Sharp, Grant Thornton International global leader for assurance services observed that:

"Globally, fraud costs businesses billions of dollars each year. Whether specialists are employed or not, processes should be in place to ensure that potentially fraudulent activity is caught in the early stages."

The Philippines not only has the highest percentage of private companies reporting having employees in place to detect and prevent fraud (72%), but those businesses also report the highest increase of those employees (60%), a good example of the high priority many developing nations have placed on prevention of fraud in order to create more investment friendly economies.

"Unfortunately many UK firms are unsure of the appropriate prevention and detection methods to handle common business fraud, particularly misappropriation of company assets and resources as a result of inadequate separation of duties, and misplaced trust on key personnel," Crooks concluded.

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