Budget cuts will lead to rise in public sector fraud
Cuts in spending and staffing in the public sector are likely to lead to a pickup in public sector fraud in the next few years, business services firm PricewaterhouseCoopers LLP warned in a report published Monday.
"Our experience tells us that economic pressures have a direct effect on people's ability to rationalize fraudulent actions," said Ian Elliott a partner at PwC. "And we know for a fact these pressures are going to be felt sharply in the public sector in coming years."
Governments around the world are slashing spending in an effort to bring down budget deficits which widened sharply during the financial crisis and the severe recession it engendered.
In the U.K., the government is set to cut spending in departments other than those concerned with health and overseas aid by 25% over the next five years, and according to a leaked Treasury document that will likely involve 700,000 jobs cuts.
According to a survey of senior public sector executives in the U.K. and elsewhere, measures of that kind create the conditions which are most likely to lead public sector workers to consider fraudulent actions.
"Fears about job losses and achieving tough targets may drive people to take drastic steps," PwC said. "When economic survival is threatened, the line separating acceptable and unacceptable behaviour can, for some, become blurred. Our survey revealed that the top reason for an increased risk of economic crime in the current environment is the fear of redundancy."
And PwC said staff reductions also create the conditions where fraudulent actions are possible, since the emphasis on preserving "front line" jobs can lead to a reduction in the resources dedicated to making internal checks.
"Financial difficulties force organisations to reduce costs and explore possible efficiencies," PwC said. "Staff reductions can result in reduced segregation of duties and less monitoring of suspicious transactions and activities. This, in turn, weakens the internal control environment and is often likely to result in more opportunities to commit fraud."
Public sector fraud can take many forms, including stealing, false accounting, and bribery. According to the PWC survey, the second of these may become more common when workers are under increased pressure to meet targets.
"Linking pay to performance is also likely to be a possible driver of fraudulent activity," PwC said. "Organizations therefore need to be aware of the correlation between compensation structures and a heightened fraud risk."