◄Previous: 13.1 Definition of fraud

# 13.2 Cost of fraud

Fraud is the most prevalent crime in the UK (National Crime Agency, no date). The threat, harm and loss caused by fraud are among the most significant challenges facing the UK government and police service. Any entity with assets is in danger of those resources being targeted by criminals. This includes major corporations, small- and medium-sized enterprises (SMEs), banks, charities, NHS trusts, educational establishments and governments. Fraud risk is, therefore, a universal concern for all entities, regardless of their size, industry and context.

The cost of fraud goes beyond financial losses. The consequences extend not just to individuals and organisations, but to national security, the economy, society and infrastructure. Fraud can adversely impact on its victims in many ways. Fraud victims often experience psychological consequences, such as feelings of anger and betrayal, the burden of self-blame, and a decrease in their self-confidence, self-esteem and ability and willingness to trust. Organisational victims may suffer reputational damage, business failure and a loss of public confidence (Kassem, 2021). In some cases, fraud could even lead to the contamination of supply chains owing to corrupt professionals, such as in the case of the Tesco horsemeat scandal in the UK (Lawrence, 2013).

Fraud in public spending in the UK is estimated to cost taxpayers ‘up to £51.8 billion every year, around £25 billion of which is outside the tax and benefits system’ (Parliament. House of Commons, 2021). It has been reported that the UK suffered a total loss of £16 billion owing to COVID-19 loan fraud alone (Jolly, 2022).

## Box 6 Patisserie Holdings and Victoria Carpets

Patisserie Holdings, the owner of cafe chain Patisserie Valerie, announced in October 2018 that the company had debts amounting to £9.8 million after significant accounting irregularities came to light. The surprising announcement came only five months after published accounts indicated that the company held £28 million in cash reserves. The investigation which followed uncovered secret overdraft facilities with two banks and an unpaid tax bill of its primary subsidiary. The investigative report by PwC revealed fraudulent entries over several years, including the double counting of voucher sales to inflate revenue and cheque manipulation to temporarily boost the company’s cash position shortly before the year end. The company fell into administration three months after the fraud was discovered, putting up to 3,000 jobs at risk (BBC News, 2018a; 2018b; Marriage and Beioley, 2019).

More recently, the external auditor of Victoria Carpets was sceptical enough to flag a fraud risk; however, in this case, the management of Victoria Carpets prevented the auditor from doing further work (Smith, 2023).

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OpenLearn - Corporate fraud and criminal behaviour
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