The UK’s cost of living crisis is creating the “ideal environment for fraudulent activity,” a new report from the Chartered Institute of Internal Auditors (CIIA) has warned.
Covid-19, the war in Ukraine, and the UK’s cost-of-living crunch are creating the “perfect conditions for fraud to flourish,” the report says, as it calls on businesses to be extra vigilant.
The call comes on the back of a series of high-profile accounting scandals centred around fraud inside major companies including café chain Patisserie Valerie, payments processor Wirecard, and collapsed construction contractor Carillion
The paper explains that soaring inflation and rising living costs are now creating new motives and rationalizations to carry out fraud, as global supply chain disruption and remote working have already increased opportunities for fraudulent activity.
“The world is in turmoil and fraudsters will take advantage of it,” the report says, as it says the economic chaos has “heightened” all three elements of the “fraud triangle” – including motivation, opportunity and rationalization.
Financial Reporting Council (FRC) chief executive Sir Jon Thompson, said: “Whether it was Carillion, Patisserie Valerie or Wirecard, we’ve seen the devasting impact fraud can have, including bringing entire companies to their knees – damaging people’s jobs and pensions in the process.”
“In line with the government’s clear intent to strengthen company directors’ responsibilities regarding fraud in the forthcoming Audit Reform Bill, it is imperative that boards and senior management act now to review and then strengthen their internal control framework.”
“With heightened levels of economic turbulence, I urge businesses to act on fraud now to help prevent major financial loss of the kind we’ve seen in recent years,” the FRC chief said.
CIIA chief executive John Wood said: “The Covid-19 pandemic, war in Ukraine and now the cost-of-living crisis have all exacerbated the risk of fraud and fraudulent behaviour.”
“As we’ve seen from a series of company failures linked to fraud in recent years, prevention is always better than cure.”