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25 Nov 2014 01:10pm

UK food and drink companies lose £11bn to fraud

Fraud is costing UK food and drink companies more than £11.2bn a year, and resulting in a "fraud tax" on groceries, according to a new report by accountancy firm PKF Littlejohn and the Centre for Counter Fraud Studies (CCFS) at the University of Portsmouth

Minimising Fraud and Maximising Value in the UK Food and Drink Sector 2014 analysed data from 73 listed companies – across the FTSE 100, FTSE 250, and others – which have a combined total annual sales of £200bn.

The research found that fraud in the sector was leading customers to pay a five pence "fraud tax" on every pound spent on groceries, and that tackling fraud in the industry could boost profitability by £4.48bn, or 34%.

I estimate that the cost of food and drink fraud to an average household is as much as £424 over a year

Jim Gee, co-author of the report and PKF Littlejohn’s head of forensic and counter fraud services, said it was vital for the sector to protect itself from fraud.

He said, “Food and drink fraud is the crime in our baskets. It results in food and drink being more expensive than it should and its reduction can significantly improve value for money.

“Like other industries, the food and drink sector is affected by fraud and is fast learning that it needs to protect itself. The good news is that addressing fraud can cut the cost by up to 40% and increase profitability significantly.”

The report found that, on average the fraud cost on a £1 loaf of bread was 5p; for a £6 bag of rice, it was 33p; and, for a 68p of baked beans, 4p – almost 6% of the total cost.

“By cutting fraud, the price of groceries could be reduced by 11p on six eggs, 16p on a pint of beer and 28p on a bottle of wine,” Gee said.

“I estimate that the cost of food and drink fraud to an average household is as much as £424 over a year.”

The report also estimates that, of the 58 listed companies that reported profits in their most recent financial statements, six could have boosted their profitability by more than 100% by tackling food fraud. Fifteen could boost their profits by 50-99%, while 31 could have seen an increase of between 10 and 49%.

Additionally, the results for the 15 companies that reported losses would also be greatly affected by well-tackled food fraud. Three companies would have reported a profit instead, while eight would have reduced their losses by 10% - four would have reduced losses by more than 10%.

Professor Lisa Jack, chair of the food fraud group at the University of Portsmouth, and co-author of the report, said that food fraud was preventing consumers and businesses from getting what they had paid for.

“Food fraud is always financially motivated,” Jack said. “On the whole, food fraud does not harm public health, it’s more that consumers and food businesses are not always getting what they pay for.

“Margins are so tight in the food sector that almost any food can be misrepresented to get a bit of profit for a fraudster.”

Jack said that while testing and audits were useful in fighting fraud, inroads could be made by simply asking the right questions and following the trail of money where necessary.

“Scientific testing and systems audits have a place but food fraud, like any other fraud, cal also be tackled if you follow the money, ask the right questions and have controls in place that make fraudsters think twice before attacking your business.

“Food fraud is about more than just food. Many frauds also evade duties and VAT, and so we all lose out from lost revenues,” she added.

Oliver Griffin

 

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