Food sector losing more than £11bn due to fraud - report

PKF Littlejohn and the Centre for Counter Fraud Studies (CCFS) at the University of Portsmouth said food and drink fraud is the “crime in our baskets​”.

Its research reviewed data from 73 listed food and drink industry companies with total annual sales of more than £200bn.

Reducing the cost of fraud in the commercial sector would mean profitability would be boosted by £4.48bn, taken as 40% of the total losses of £11.2bn, or over 34.1%.

PKF Littlejohn is an accountancy and business advice firm and London member of PKF International.

Rough estimates: Until now​

David Edwards, former director and now consultant to NSF International, said the report is a major step forward, allowing the real cost of fraud to be measured as a business cost like any other and for proper investment to be made in combatting it.

Edwards, also board member of the CIEH and advisory board member of IFSIP, told FoodQuaslityNews.com that there are three angles to food fraud: food safety, crime and finance.

“The problem is that currently there simply are not enough people with the technical or forensic skills to identify fraud in all its guises,” ​he said.

“Forensic accounting, a key component of identifying fraud, certainly isn't within the normal remit of regulators and corporate food technologists are neither trained nor configured to start looking in detail at buying practices.​

“NSF has worked together with Portsmouth University on the development of fraud awareness training courses which provide businesses with the tools to detect fraud and for the Food Standards Agency on the development of a model to detect and prevent fraud in the supply chain.​

“But above all, food businesses must develop an end-to end understanding of their supply networks to prevent fraud.”​

Complex supply chain​

Vincent Doumeizel, LRQA strategic marketing food and beverage VP, told us while food has never been as safe, it could be argued that food fraud has been around since production began.

“Factors such as price and scarcity of some of our key resources due to climate change, compounded with many elements of food production being converted into biofuel means that the supply chain has become increasingly complex and the food industry recognises the need to mitigate risks associated with potential food fraud,” ​he said.

“LRQA believes that a process-based management systems approach to food safety has the flexibility to assess this growing threat to the food industry and consumers alike. ​

“While risk is always going to be a factor in any supply chain, this approach, based on collaboration and trust supported with the provision of clear and accurate data – or big data in the years to come – can only be a positive step in the fight against food fraud.”​

Occuring at every level of supply chain​

Nick Miller, head of FMCG at Crimson & Co, said what is most disturbing is only three per cent of fraud is being detected.

“​Food and drink fraud is taking place at every level of the supply chain, where perhaps people are trying to save money through short-changing the next person in the chain, which could be in the form of making false claims or substituting ingredients.​

“To address this issue, food and drinks retailers must ensure that there is complete traceability and transparency across all levels of their supply chains, by introducing  monitoring and checks that will enable them to be sure that all quality standards are adhered to. ​

“Further to this, companies must reassess their pre-existing relationships with supply chain operators and be prepared to walk away if suppliers are unable to demonstrate clear line-of-sight across their manufacturing processes.”​

Why tackle the issue?​

Benefits of tackling fraud include more companies joining the sector because its increased profitability makes it a more attractive business proposition,said report authors Jim Gee, professor Lisa Jack and professor Mark Button.

Professor Jack, chair of the Food Fraud Group at University of Portsmouth, said the practice is always financially motivated.

“Scientific testing and systems audits have a place but food fraud, like any other fraud, can 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.”​

Global research shows that fraud costs organisations an average of 5.47% of expenditure but this varies considerably according to how resilient to fraud they are.

By ensuring resources are not diverted from their intended place, there are real competitive and financial advantages, said the authors.

Price on products​

Professor Gee said food fraud results in products being more expensive and reducing it could significantly improve value for money.

“By cutting fraud, the price of groceries could be reduced by five pence on a loaf of bread, 11 pence on six eggs, 16 pence on a pint of beer and 28 pence on a bottle of wine.” ​

Total annual revenues of £204.77bn, with pre-tax profits of £13.14bn, representing 6.4% of revenues were found from the 73 companies studied.  

The loss and percentage of profit figures were worked out by applying the global average loss rate (5.47%), derived from where losses have been accurately measured.

Of the 58 companies which made profits, six would increase profitability by 1-9%; 31 would do so by 10-49%; 15 would do so by 50-99%; with six companies increasing profitability by more than 100%.

Of the 15 companies which made losses, three would make a profit not a loss, eight would reduce losses by up to 10% and four by over 10%.