Recent research has found that half of all UK companies may have been affected by fraud or other economic crime in the past two years.

The researchers found that more than half of the organisations they questioned had suffered losses of £72,000 or more due to fraud or economic crime in that time. Almost a quarter of them admitted losses of more than £720,000.

Tellingly, only 50% of the firms that responded to the questioning had carried out a fraud risk assessment in the last two years.

The figures are taken from PwC's ninth biennial Global Economic Crime and Fraud Survey, which is based on input from more than 7,000 business decision-makers across 123 countries; including 146 from the UK.

Costs

Although the survey cannot be taken as a completely accurate assessment, it is a valuable snapshot of fraud in the business world. Its findings regarding the number of companies that may have been affected by fraud or other economic crime cannot be ignored. The size of the losses involved also make it too important to be overlooked.

The costs of fraud, however, go way beyond the balance sheet. The damage in terms of disruption, staff morale, reputation and relationships with customers and trading partners is costly in ways that are often too difficult to put a figure on. But while it may be impossible to fully assess the total cost of fraud, each and every company should be aware of the need to prevent it.

Some corporates may not be currently affected by fraud and, as a result, may believe it will not happen to them. Some may hold this belief while it is actually being committed against them without their knowledge. And some may be aware that it is happening to them and not know what to do.

The answer, in one word, is prevention.

Prevention

Whether fraud is or isn't being committed in a company, each one has to take all necessary steps to assess the potential for wrongdoing being committed by staff, third parties, intermediaries, customers, trading partners and anyone else with a connection to it or knowledge of its workings.

It is the responsibility of senior staff to identify the potential for problems and then devise, introduce and maintain procedures that allow wrongdoing to be identified and prevented. A company without adequate prevention measures is a company that is vulnerable to fraud, not to mention other forms of business crime.

Fraud prevention cannot be achieved without the company taking the time and effort to assess the way it works and the ways in which it could be vulnerable to it. That is the case for any company that trades in any country and in any business sector. It has to look at every aspect of its operation: activities inside and outside the workplace, those working for or with it, record keeping, payment procedures and management and monitoring structures. Each aspect may contain weaknesses that could be exploited by those looking to make fraudulent gains.

If this sounds worrying or too daunting a task, the right legal advice can be sought. Business crime lawyers with the relevant expertise and experience can examine a company's workings, identify areas where it may be vulnerable to fraud and then devise ways for these vulnerabilities to be "designed out''.

Investigations

An appropriate whistle blowing procedure will complement any fraud prevention measures that a company introduces. Encouraging staff to report their suspicions of wrongdoing (in the knowledge that their concerns will be treated seriously) can help promote an anti-fraud workplace culture.

This approach creates an awareness of the possibility of fraud, makes it more likely to be detected and serves as a deterrent to those who may be thinking of committing it. Such reports can be investigated thoroughly and discreetly to allow a company to determine what, if any, wrongdoing has been committed and what response is necessary.

As a firm, we have carried out many internal investigations for companies who have felt unable to conduct them for themselves. Such investigations can be a vital first step in determining whether wrongdoing has been committed and, if so, who by.

If an investigation does show that fraud has been committed, a company can report it to the police or other agency, initiate civil proceedings against those suspected of committing it or bring a private prosecution against them, under the Prosecution Offences Act 1985.

But it must be remembered that such options are only available if an independent internal investigation has been carried out properly. An internal investigation is only likely if information has come to light that indicates possible fraud. And that information in itself is only likely to emerge if the company has procedures in place for fraud to be prevented, identified and reported.

Vulnerability

These procedures cannot be dismissed as mere bureaucratic exercises. The statistics in PwC's research show that. Anyone who takes a dismissive approach to those statistics should also think again. The figures represent real cases where real companies have lost real (and often large) amounts of money because of their unwillingness or inability to tackle fraud.

The irony is that PwC has, in the past, found itself at the centre of fraud controversies. As an example, in 2007 it paid $225M to Tyco shareholders for failing to identify fraud at the company while acting as its auditor. During that time, Tyco overstated its income by $5.8 billion.

When the Tesco accounting scandal broke in 2014, PwC was the supermarket giant's auditor. It faced awkward questions from the authorities about how it had not spotted that Tesco had overstated its profits by £300M. This overstating led to Tesco being fined £129M and three of its senior executives being charged with fraud and false accounting.

Such cases, like PwC's carefully-compiled research, have to be seen as a warning about the need for every company to ensure that fraud is prevented.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.