Three in four fraud professionals back mandatory fraud reporting
Three in four fraud professionals believe that reporting frauds committed against organisations should be mandated in England and Wales in a bid to stamp out a crime which costs billions each year, a new report published today has found.
Fraud is the UK’s most common crime, but under current legislation there is no requirement in England and Wales for a company to report fraud to law enforcement and little incentive for them to do so unless a criminal prosecution is sought, the Fraud Advisory Panel and the UK Chapter of the Association of Certified Fraud Examiners, said.
A study of 200 fraud professionals, commissioned from Perpetuity Research by the two organisations, found that two-thirds of those backing mandatory fraud reporting believed it should be compulsory in all instances, irrespective of the financial impact.
Some 37% thought that the failure to report fraud should be a criminal offence.
Fewer than a third of respondents thought mandatory reporting was only suitable for frauds that were financially material to an organisation.
Nearly three-quarters of respondents backed the introduction of new wide-ranging legislation as a way to facilitate mandatory fraud reporting. New fraud-specific legislation and expanding existing legislation were supported by 69% and 65% of respondents respectively. Just 31% of respondents favoured the introduction of mandatory reporting through corporate governance, such as an annual fraud return or similar.
Company boards should have a duty to report fraud, closely followed by senior management and auditors, respondents said.
However, those who took part in the survey were sceptical about the number of prosecutions that would be brought for failure to report fraud, pointing to the current low level of fraud prosecutions in the UK.
David Clarke, chairman of the Fraud Advisory Panel, said: “Fraud is the UK’s most common crime and costs our economy billions a year, but there is no legal requirement for businesses in England and Wales to report a fraud to law enforcement.
“We need to raise our collective game very substantially to meet the enormous challenge that fraud poses, and this will require key changes, including the possibility of mandatory fraud reporting.
“This report is an important first step in the debate about how mandatory reporting could work and we will continue to engage with those working in fraud protection to find effective ways to tackle this problem.”
Overcoming barriers to reporting fraud
The administrative burden would need to be addressed before mandatory fraud reporting could be introduced, the study found, while reputational damage was also seen as a barrier for the majority of those surveyed.
Some businesses feared being perceived as a ‘soft’ target and would be targeted further by fraudsters and other criminals if they reported they had been a victim of fraud. Others were concerned about reprisals by regulators and insurance companies.
Just under two-thirds also felt that having to deal with the consequences of fraud once it had been reported would stop some people from supporting mandatory reporting.
Tim Harvey, of ACFE UK Chapter, said: “We are pleased to be able to fund this project. Taken in the round, these findings point again to the urgent need for a cohesive approach to tackling fraud based on sound strategy and sufficient resources. The survey finds strong support for the idea of a statutory approach to mandatory reporting but there’s also plenty of scepticism about its likely vigour and rigour, as well as a belief that complementary change is needed to help organisations manage their concerns about their reputation and resources.”
Professor Martin Gill, of Perpetuity Research, said: “We commend the Fraud Advisory Panel and the ACFE for tackling this controversial matter. The pros and cons of suspicious activity reporting (SAR) for anti-money laundering are well understood, but little is known about how, or if, something similar could work for fraud. What the people involved in tackling fraud actually think about mandatory fraud reporting should be central to that debate, but no-one had asked them, until now.”
