Misspending public money is top risk area for fraud – new global risk register reveals

Misspending government funding is the top risk area for fraud today, reveals new research by Moore Stephens, the Top Ten accountancy firm and the Chartered Institute of Public Finance and Accountancy (CIPFA).

Click here to read the research findings.

Almost half (48%) of accountants surveyed said that grant fraud poses a high or very high risk, putting it at number one on the Moore Stephens/CIPFA Global Fraud Risk Register.

Grant fraud is where individuals, businesses or charities apply for and receive money they are either not eligible for, or when eligible funds are then spent on activities that were not included in the conditions of the grant.

Moore Stephens explains that these grants can include EU or UN funding for activities such as research or humanitarian projects.

Moore Stephens adds that there could be a rush for the last EU grants open to the UK before Brexit, which could see the likelihood of fraudulent applications increase.

One recent example of grant fraud is the case of a Cambridge historian, who claimed £223,000 from the Heritage Lottery Fund for a fictional archaeological scheme, but instead spent it on mortgage repayments and a new car, and was subsequently jailed for six years.

Money laundering is seen as the second highest risk, with 42% of respondents rating it as a high or very high risk, followed by payroll fraud third, with 41% giving it the highest risk ratings. These fraud areas have been ranked as higher risk than ‘hot topics’ such as cyber-crime and bribery.

Moore Stephens and CIPFA surveyed over 150 partners from Moore Stephens’ and CIPFA’s international networks in 37 countries to gauge the most serious at-risk areas in their countries and sectors. Respondents considered 18 different types of fraud, scoring them from 1 (lowest risk) to 5 (highest risk).

In developed countries, grant fraud comes top of the list of concerns with 53% of respondents rating it as high or very high risk, followed by bribery (47% of respondents) and payroll fraud (46%).

For the UK specifically, grant fraud and payroll fraud are the top two risks, with 44% and 41% of respondents rating it as high or very high risk respectively.

John Baker, Director at Moore Stephens says: “Government grants are often seen as an easy fraud target.”

“It may seem surprising to find Government grants eclipsing more ‘fashionable’ areas like cyber-crime when it comes to fraud risk. That said, it may be the case that areas such as cyber and bribery have been addressed more recently due to the high profiles, leaving more traditional areas unattended.”
“Respondents in both developed and emerging economies seem to agree that funding bodies and donors should be focusing on doing more to tighten up their scrutiny of grant applications.”

“If it wasn’t for whistle-blowers and financial auditors, many of these fraudulent schemes would go unnoticed and millions would be lost to fraud.”

In emerging markets, 62% of respondents rated grant fraud at high risk. This is the same percentage of respondents who rated CEO/whale fraud (where fake emails purport to be from company bosses instructing payments to be made to fraudsters) as high risk.

Moore Stephens offers a flexible online tool for managing fraud risks and their mitigating controls and improvement actions, called Rhiza. Rhiza is an easy-to-use and straightforward system which can also be scaled up to manage enterprise risks – helping to fully embed fraud risks into corporate Risk Registers.

Percentage of respondents scoring fraud risks high or very high
Fraud risk High risk
Grants 48%
Money laundering 42%
Payroll fraud 41%
False representation 40%
Bribery 40%
Bank mandate 39%
Cyber crime 38%
Misreporting results 37%
CEO/'whale fraud' 37%
Procurement fraud (receipt, evaluation and award fraud) 32%

To discuss the research, please get in touch with John Baker or David Carter.

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