By Daniel Hunter

The UK is losing some £85.3 billion to fraud every year according to the latest Financial Cost of Fraud Report 2013 from BDO LLP, the accountancy and business advisory firm.

The report, one of the most detailed in the world and based on fifteen years of data, finds that average losses, based on total expenditure, for the period between 1997 and 2007 were 4.57%.

However, taking account of data from the five years since the start of the recession in 2008, this figure has risen dramatically by almost 20% to 5.47%. In terms of UK GDP, this implies a total loss to fraud of £85.3bn and on a global basis, a total loss of £2.91 trillion.

The increase in losses reflects a common picture found in previous recessions. Between 1980-1981, UK GDP shrank by 6.1% and reported fraud and forgery rose by 9.1%; between 1990-1991 UK GDP shrank by 2.5% and reported fraud and forgery rose by 30.5%.

The good news is that the report quotes examples of where this cost has been reduced by up to 40% within 12 months through initiatives designed to pre-empt fraud. These have included the development of strong anti-fraud cultures, the creation of meaningful deterrents and the revision of processes that remove system weaknesses which provide opportunity for fraud. A 40% cut in the UK losses to fraud would represent around £34bn which is the equivalent of the UK Government’s 2012 budget for Education. Examples include:

- The UK’s NHS where losses were reduced by up to 40% within 12 months and up to 60% over a longer period;

- The UK’s Department of Work and Pensions achieved a significant reduction of more than 24% in losses in respect of Job Seekers Allowance.

- The U.S. Department for Veterans Affairs successfully reduced its losses across a $4 billion programme by more than 46%;

- The U.S. Department of Agriculture successfully reduced its losses across an $8 billion programme by more than 22%;

“Fraud remains a challenging and expensive problem, and its economic effects are clear — affected public services, less financially stable and profitable companies, reduced job security and lower disposable incomes for us all. The financial crisis, where fraud has risen significantly, has clearly provided the ideal conditions in which fraud can grow," Jim Gee, Director of Counter Fraud Services, BDO LLP commented.

“Assessing the true cost of fraud, as opposed to the cost of reported fraud, presents some very scary numbers. Putting in place pre-emptive measures could make very significant improvements to the financial health and stability of UK plc.

Professor Mark Button, Director of the Centre for Counter Fraud Studies and co-author of the report, said: ”A key first step in solving this problem of fraud is to understand the nature and scale of it. This report shows its true scale, both in the UK and globally. Research has an important part to play in this and we are pleased to match BDO’s practical experience with our world leading database and academic rigour.”

Join us on
Follow @freshbusiness