Uncovering the hidden cost of staff fraud: an assessment of 45 cases in the UK

Author:Mark Button, Dean Blackbourn, Chris Lewis, David Shepherd
Position:Centre for Counter Fraud Studies, University of Portsmouth, Portsmouth, UK; Centre for Counter Fraud Studies, University of Portsmouth, Portsmouth, UK; Centre for Counter Fraud Studies, University of Portsmouth, Portsmouth, UK; Centre for Counter Fraud Studies, University of Portsmouth, Portsmouth, UK
Pages:170-183
SUMMARY

Purpose - The purpose of this paper is to provide evidence on the additional costs of dealing with staff fraud, beyond the initial fraud loss, based on 45 cases of staff fraud. Design/methodology/approach - The research began with a “brainstorming” session with counter fraud professionals to map all potential costs in a staff fraud. It then... (see full summary)

 
FREE EXCERPT
Uncovering the hidden cost of
staff fraud: an assessment of 45
cases in the UK
Mark Button, Dean Blackbourn, Chris Lewis and David Shepherd
Centre for Counter Fraud Studies, University of Portsmouth, Portsmouth, UK
Abstract
Purpose – The purpose of this paper is to provide evidence on the additional costs of dealing with staff
fraud, beyond the initial fraud loss, based on 45 cases of staff fraud.
Design/methodology/approach – The research began with a “brainstorming” session with counter
fraud professionals to map all potential costs in a staff fraud. It then utilised a twin-track approach of a
survey and interviews. A survey was distributed using a number of methods yielding 28 usable cases.
Interviews were also sought with organisations willing to discuss staff fraud, which secured a further
17 cases. Both the survey and interview used the same questionnaire, although the latter enabled a
deeper questioning of participants.
Findings This study examined 45 cases of staff fraud from a wide range of sectors drawn
predominantly from larger organisations. From each of these cases detailed, estimates of the costs of
dealing with the fraud were identied. Major additional costs included the costs of investigation, staff
suspensions, internal disciplinary costs, external sanctions, permanent staff replacement,
miscellaneous costs as well as intangible costs. The ndings identied signicant costs which are
signicantly above the initial value of the fraud, particularly on initial frauds under £25,000.
Research limitations/implications Staff fraud is a very sensitive subject with many
organisations unwilling to reveal what happens when it occurs. The approach was therefore to secure
as much data as possible and as such this might not be representative of the broader economy.
Practical implications – The paper highlights the need for greater investment in prevention given
the substantial costs of staff fraud to deal with.
Originality/value – This is the rst attempt to gauge the full costs of staff fraud to an organisation.
Keywords Measurement, Cost, Hidden cost, Staff fraud
Paper type Research paper
Introduction
There are a plethora of studies of varying sophistication and validity which seek to
estimate the costs of fraud to society and organisations (for some of the most high
prole: Levi and Burrows, 2008;ACFE, 2012;Button et al., 2012;KPMG, 2012;National
Fraud Authority, 2013). These studies, however, focus on the initial loss. The reality for
most victims of fraud is that the initial fraud loss is the start of a whole series of
additional costs which transpire for the organisation to deal with. There has been
limited interest in the additional costs of dealing with crime in general and none vis-a`-vis
fraud, rooted in an evidence base founded on research. The British Home Ofce in recent
times has attempted to estimate the costs of crime to society with two signicant studies.
In 2000, it was estimated that the total costs of crime to society amounted to £60 billion
(Brand and Price, 2000). Included in the additional costs beyond the actual loss were
security expenditure, insurance, lost output, victim services, health services, criminal
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
JFC
22,2
170
Journalof Financial Crime
Vol.22 No. 2, 2015
pp.170-183
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-11-2013-0070

To continue reading

REQUEST YOUR TRIAL