Fraud costs UK food and drink companies £11bn a year, says new research

Customers pay five pence in the pound fraud “tax” on their groceries

UK listed food and drinks companies could be losing more than £11.2bn¹ a year to fraud and error, equivalent to more than 85 per cent of their total profits, according to a new report by PKF Littlejohn and the Centre for Counter Fraud Studies at the University of Portsmouth (www.port.ac.uk/centre-for-counter-fraud-studies/).

The report, “Minimising Fraud and Maximising Value in the UK Food and Drink Sector 2014” will be launched on 25 November in London at the Food Crime Conference organised by the Institute of Food Safety Integrity & Protection in partnership with the Chartered Institute of Environmental Health. 

The research reviewed data from 73 listed food and drink industry companies (UK FTSE 100, FTSE 250, FTSE AIM 100, FTSE AIM All Share, FTSE AIM UK 50, FTSE Fledgling and FTSE Small Cap companies) with total annual sales of more than £200 billion.

According to the research:

  • The food and drink industry could boost its profitability by £4.48 billion, or over 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.

“Food and drink fraud is the crime in our baskets”, says Jim Gee, co-author of the report and Head of Forensic and Counter Fraud Services for PKF Littlejohn. “It results in food and drink being more expensive than it should and its reduction can significantly improve value for money.

“By cutting fraud, the price of groceries could be reduced by 5 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 wine².  I estimate that the cost of food and drink fraud to an average household is as much as £424 over a year³.

“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, 6 would increase their profitability by between 1 and 9 per cent; 31 would do so by between 10 - 49 per cent; 15 would do so by between 50 - 99 per cent; six companies would increase their profitability by more than 100 per cent.  Of the 15 companies which made losses; 3 would make a profit not a loss; 8 would reduce their losses by up to 10 per cent and 4 by over 10 per cent.”

Professor Lisa Jack, co-author of the report and Chair of the Food Fraud Group at the 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."

Following the Elliott Report into the horsemeat scandal, PKF Littlejohn and the University of Portsmouth have worked together to try and help the food and drink sector better protect itself against fraud. They have made available a new, 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 a series of counter fraud training courses for those working in the food and drink industry.

 

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For further information and to arrange interviews, please contact:

Jacky Morgan or Charlie King at Kelso Consulting (www.kelsopr.com – PR advisers to PKF Littlejohn) on 020 7242 2286.  Emails: jackym@kelsopr.com and charliek@kelsopr.com

Sophie Hall or Alison Coote at The Centre for Counter Fraud Studies at the University of Portsmouth on 02392 84535 or 02392 843788. Emails: sophie.hall@port.ac.uk and Alison.coote@port.ac.uk.

Note to editors:

¹ The report uses data on fraud going back 15 years which shows losses currently averaging 5.47% of expenditure.

 

²

 

Item

Price[1]

Fraud Cost

 Loaf of Fresh White Bread (750g)

£1.00

£0.05

Rice (white), (5kg)

£6.00

£0.33

Eggs (6)

£2.00

£0.11

Cheddar Cheese (350g)

£4.00

£0.22

Butter (250g)

£1.70

£0.09

Chicken Breasts (Boneless, Skinless), (350g)

£4.00

£0.22

Apples (1kg)

£3.39

£0.19

Oranges (5)

£1.80

£0.10

Tomato (1kg)

£1.60

£0.09

Potato (2.5 kg)

£1.75

£0.10

Lettuce (1 head)

£0.49

£0.03

 

 

 

Pint of beer

£2.95

£0.16

Coca-Cola (1.5L)

£1.55

£0.08

Semi-Skimmed Milk (2.27L - 4 Pints)

£1.00

£0.05

Baked Beans (415g)

£0.68

£0.04

Spaghetti (500g)

£1.30

£0.07

Back Bacon (210g)

£1.50

£0.08


[1] The prices have been derived from the food and drink price comparison website - www.mysupermarket.co.uk

³ The number of households in the UK is: http://www.ons.gov.uk/ons/dcp171778_332633.pdf So £11.2 billion/26.4million = £424.24 per household.

About the Centre for Counter Fraud Studies, University of Portsmouth

The Centre for Counter Fraud Studies (CCFS) is one of the specialist research centres of the Institute of Criminal Justice Studies, formed in 2009 to accommodate the growing interest in counter fraud that has occurred within the Institute over the last ten years. The Centre aims to collate and present the widest possible range of information regarding fraud and the solutions applied to it, and to undertake and publish further research where needed. Additionally, the Centre’s Fraud and Corruption Hub gathers the latest thinking, publications, news and research in one central resource for counter fraud professionals.