UK listed food and drinks companies could be losing more than £11.2bn a year to fraud and error, equivalent to more than 85 per cent of their total profits. That is according to a report by Professor Lisa Jack, of the University of Portsmouth’s Centre for Counter Fraud Studies, and Visiting Professor Jim Gee, head of forensic and counter fraud services for PKF Littlejohn.
The report, Minimising Fraud and Maximising Value in the UK Food and Drink Sector 2014, was launched at the Food Crime Conference organised by the Institute of Food Safety Integrity and Protection in partnership with the Chartered Institute of Environmental Health. The research reviewed data from 73 listed food and drink industry companies with total annual sales of more than £200bn. According to the research:
The food and drink industry could boost its profitability by £4.48bn, or more than 34 per cent by tackling fraud.
Cutting fraud and error would make companies more competitive and enable them to reduce prices for the customer.
The cost of groceries could be reduced by as much as five pence in every pound.
Professor Jack, co-author of the report and Chair of the Food Fraud Group at University of Portsmouth, said: “Food fraud is always financially motivated. 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.
“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.
“Food fraud is about more than just the food: for example, many frauds also evade duties and VAT, and so we all lose out from lost revenues. Margins are so tight in the food sector that almost any food can be misrepresented to get a bit of profit for a fraudster.”
Professor Gee said food fraud results in food and drink being more expensive than it should be and reducing fraud could significantly improve value for money.
He said: “Food and drink fraud is the crime in our baskets. 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. 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 of fraud by up to 40 per cent and increase profitability significantly.
“We estimate that of the 58 listed food and drink companies which reported profits, six would increase their profitability by between one and nine per cent; 31 would do so by between 10 to 49 per cent; 15 would do so by between 50 to 99 per cent; six companies would increase their profitability by more than 100 per cent. Of the 15 companies which made losses; three would make a profit not a loss; eight would reduce their losses by up to 10 per cent and four by over 10 per cent.”
Following the Elliott Report into the horsemeat scandal, PKF Littlejohn and the University of Portsmouth have made available a free, on-line Self-Assessment Fraud Resilience tool for companies to find out how well or badly they are protected (at www.pkf-safr.com) and plan to offer counter-fraud training courses for the food and drink industry.
