By Max Clarke
Today the National Fraud Authority (NFA) published its second Annual Fraud Indicator (AFI), which estimates fraud is costing the UK over £38 billion a year.
The new estimate and comprehensive data breakdown is testament to improved methodologies and cooperation across Government and industry. It also shows the real impact fraud has on individuals, businesses and Government.
Loss estimates to fraud by sector:
• Public - £21 billion
• Private - £12 billion
• Individuals - £4 billion
• Charity - £1.3 billion
The public sector remains the highest proportion of the fraud loss at £21 billion - 55% of the total figure. This estimate, for the first time, includes new and more accurate figures for procurement (£2.4 billion) and grant fraud (£515 million).
The size of the public sector estimate is, in part, due to diligence in reporting fraud loss data, combined with more comprehensive measurement techniques than other sectors. It is also important to note that this figure represents a relatively small percentage when taken in context of the public sector's overall spending and income.
A better understanding of fraud in the public sector has led to the Cabinet Office setting up a cross-Government Counter-Fraud Taskforce which is overseeing a number of pilots to develop and establish counter fraud techniques that can be rolled out across the public sector. In addition to this, the NFA is progressing 15 different projects, many of which form a part of the Taskforce work, to help central and local government cut key fraud risks and deliver savings.
Collaboration with the charity sector has enabled the NFA, for the first time, to provide an accurate estimate of the level of fraud within this sector. The £1.3 billion figure was identified in a survey the NFA conducted gauging how fraud affects the sector, to which over 1,000 charities responded.
This estimate represents around 2.4% of the total charity sector turnover. The NFA and the Charity Commission are working closely together on a number of counter-fraud prevention initiatives to encourage charities to build improved fraud prevention measures into their operations and to develop a stronger counter fraud culture in this sector.
Individual citizens' losses equated to 10% of the overall fraud figure (£4 billion), covering loss from mass-marketing fraud such as share sale, lottery and advanced fee frauds as well as newer frauds such as online ticketing and rental fraud. This additional information along with data included from Action Fraud, the national fraud reporting centre run by the NFA, widened the scope of last year's figure (£3.5 billion) to produce an increased figure within this AFI. Action Fraud saw over 70,000 contacts made by the public and 10,000 crimes reported totalling £93 million lost by individuals over the past 12 months to fraudsters.
The NFA and law enforcement are working together to build increased capacity for disruption of criminal attacks against individuals, as well as better intelligence sharing and analytics to support enforcement action. Cross-government and industry work also continues to increase public awareness of fraud and how to protect against it.
Dr Bernard Herdan, Chief Executive of the NFA, said:
"Victims of fraud are found in all sections of society. Whether it is the public, private and charity sectors or as individual citizens, it is vital we join together to take action to stem the rising tide of fraud. The Annual Fraud Indicator is our blueprint. It enables us to gain a perspective and judge the scale of the problem and target our actions accordingly.
"Tackling fraud will not solely be achieved through more investigation, prosecution and punishment of fraudsters. The NFA is working with its partners to promote greater fraud awareness and self-protection, encourage organisations to adopt fraud proof systems, enable fraud reporting and facilitate better sharing of intelligence on fraudsters. We want to develop a stronger counter fraud culture, which helps to disrupt fraudulent activity across the UK and globally."
Minister for the Cabinet Office, Francis Maude, said:
"The latest National Fraud Authority estimate shows that 55% of fraud - a massive £21 billion - is committed against the public sector. That's the equivalent of building 800 secondary schools, or employing over 615,000 nurses and it's a problem that we are not going to ignore. Ripping off the taxpayer will not be tolerated.
"Contrary to what many people think, fraud and error is not just confined to benefits and revenue. It affects every Government department and impacts on the Government's ability to deliver better public services, while stripping the civil service of vital resources. We can't and won't allow this to happen anymore. Our Counter Fraud Champions will begin work immediately to crack down on fraud across Government and public services.
"We know this zero tolerance approach works. The pilots being run by the Counter Fraud Taskforce, which I set up last year, are already making serious savings. HMRC has already saved £1m from stopping single person allowance fraud, where 300 people have been identified as actually living with a partner. If rolled out nationally, this exercise could save £500m - £1bn over the next 18 months."
Mike Cherry, Policy Chairman, Federation of Small Businesses, said:
"The Federation of Small Businesses (FSB) was pleased to collaborate with the National Fraud Authority in capturing the cost of fraud to small businesses - around £2,800 per business, per year. These costs can hamper enterprise for small firms when in fact the Government are looking to them for economic growth and job creation.
"The FSB is calling on small businesses to report fraud to the Action Fraud - in the knowledge that this information will be used to build up a full picture of fraud with prosecutions as a result. Despite public sector cuts, small businesses still need to see an improvement in the capability of the police when dealing with these issues locally. Importantly too, we must see an end to the 'passing the buck' scenario when a fraud involves more than one police force."
Commissioner Adrian Leppard, of the City of London Police, National Lead Force for Fraud, said:
"With the advancement of technology we find the nature of fraud is constantly evolving. But the key facts remain the same; fraud is costing the UK economy tens of billions of pounds and fraudsters are destroying the lives of thousands of people, young and old.
"In 2011 we must make sure we use all the weapons at our disposal to break the criminal networks and help prevent fraud in all corners of our society. In the National Fraud Intelligence Bureau (NFIB) the counter fraud community now has the most advanced police analytical system in the world ready to lead our fight against financial crime."
Also commenting on the NFA’s news is Marcus McCaffrey, Head of Fraud and Corruption Investigations at Baker Tilly- accountants and business advisors,
“A 27% increase in fraud across the UK economy is concerning at a time when both the private and public sector are focussing on driving down unnecessary costs. History demonstrates that fraud is often detected when businesses scrutinise their operating models in the context of a depressed economy. Against the backdrop of Government spending cuts, it is particularly alarming to see fraud in the public sector accounting for 55% of the total loss.
“Business and public sector leaders should take a hard look at fraud controls, policies and procedures if they are serious about reducing operational costs.”