According to a new report, the annual cost of fraud in the UK could be as high as £193 billion per annum. This assertion dwarfs previous estimates produced by the UK Government which put the figure at around £50 billion back in 2013.
The Annual Fraud Indicator 2016 has been produced by the UK Fraud Costs Measurement Committee (UKFCMC) with support from Experian and PKF Littlejohn, and is based on comprehensive research conducted by the University of Portsmouth’s Centre for Counter Fraud Studies, widely known to be Europe’s premier research centre concerning fraud.
The UKFCMC has revised and renewed research undertaken by the Government up to 2013. It reveals the staggering true cost of fraud – an average of more than £3,900 per adult in the UK, with losses taking place at a staggering rate of £6,000 per second.
The private sector has been under the biggest attack from fraudsters, with both SMEs and large-scale enterprises losing an estimated total of £144 billion each year. By far the biggest source of fraud for these businesses relates to procurement, which totals an enormous £127 billion. Procurement fraud includes crimes such as the submission of false invoices or the awarding of contracts in exchange for bribes.
The report highlights that procurement is so vulnerable because of the sheer size of expenditure which it accounts for, as well as the ‘high volume, low value’ nature of transactions conducted and the breadth of fraudulent activity to which it’s susceptible.
Professor Mark Button, director of the University of Portsmouth’s Centre for Counter Fraud Studies, explained: “The level of losses suffered by the public sector and central Government as a result of fraudulent activity are immense. Government suffers in a similar way to the private sector from vulnerabilities in procurement, but what’s also telling is that more than £15 billion is lost annually to tax fraud largely as a result of individuals and organisations not declaring and under-declaring income.”
Scale of the problem
Chris Clark, at Experian for the UK and Ireland, said: “The startling figures that have emerged from the Annual Fraud Indicator illustrate the scale of the fraud problem currently facing the UK. £193 billion per year underlines that there’s much more work still to do, despite evolving anti-fraud measures.”
Clark continued: “It’s not just a problem for the UK Government, businesses and charities. Fraud has an impact on every individual in the UK. Although 95% of the fraud taking place isn’t a ‘direct to end consumer’ cost, those lost funds are passed on to individuals in the form of higher costs on products and services. Every transaction we make, whether that’s buying a washing machine or putting money into a savings account, is affected by the fraud epidemic.”
Jim Gee, chairman of the UK FCMC and head of forensic counter-fraud services at PKF Littlejohn, outlined: “Fraud has a pernicious social and economic impact on the UK. Private sector companies are less financially stable and healthy than they would otherwise be, public sector organisations cannot provide the quality of public services that we pay our taxes to receive and even charities are deprived of the full value of the donations which we make.”
He went on to state: “It’s best seen as similar to a clinical virus – something which continually mutates and changes as fraudsters seek the greatest benefits for the least risks. The best way to reduce its extent and cost is to make sure our organisations are fraud resilient and able to protect themselves against a continually evolving threat.”
In conclusion, Gee commented: “This report continues the Government’s work in producing an Annual Fraud Indicator to provide a view of its total cost across the UK. The results reflect a growing understanding that, unless we understand the nature and scale of fraud, we cannot apply the right solution to diminish it.”
Biggest types of fraud
*payroll fraud, which accounts for losses of £12 billion per year (that’s 8% of the total cost of fraud to the private sector)
*the charity or ‘third sector’ is hit with fraud costs of £2 billion per annum
*mortgage lending, which suffers losses equivalent to £1.3 billion an an annual basis and in which 84 applications out of every 10,000 are suspected to be fraudulent
*insurance sector fraud costs £1.3 billion per annum through illegitimate claims, with an estimated 350 frauds taking place every day
Focusing on the public sector
Fraud in the public sector of around £37.8 billion is equivalent to just 5.5% of the £694 billion spent annually. Central Government bears the majority of this cost at around £30 billion per year. Procurement fraud is again a major source of losses, costing central and local Government a combined £10.5 billion every year.
Other key areas that are hitting Government purse strings include:
*tax fraud costing £15.4 billion every year (equal to 3% of the total tax revenue)
*fraud losses in the NHS relating to income and expenditure amounting to £2.5 billion
*housing tenancy fraud, which is estimated to cost £1.7 billion
*benefit and tax credit fraud, which are estimated at £2.4 billion
*grant fraud (estimated to cost £2.7 billion)
Identity fraud: a serious concern
The cost of fraud carried out directly against individuals is now estimated at £9.7 billion per year, with identity fraud being the single largest contributor at almost £5.4 billion. It’s estimated that there are up to 3.25 million victims. Given the rise in identity theft and the prevalence of cyber crime, this total is only expected to grow.
*Thanks to the partnership between Experian, PKF Littlejohn and the University of Portsmouth’s Centre for Counter Fraud Studies, the Annual Fraud Indicator aims to help consistently gauge, analyse and quantify the true scale of fraud in the UK
**For the full report findings visit: http://www.port.ac.uk/centre-for-counter-fraud-studies/uk-fraud-costs-measurement-committee/
Lady Barbara Judge CBE appointed chairman at Cifas
Cifas, the UK’s fraud prevention service, is pleased to announce the appointment of Lady Barbara Judge CBE as the organisation’s new chairman. Lady Barbara will officially take-up the role in September this year, when she succeeds the outgoing chairman Ken Cherrett, who has taken the decision to stand down after 25 years’ service.
A trained commercial lawyer with both British and American citizenship, Lady Barbara has enjoyed a successful international career as a senior executive, chairman and non-executive director in both the private and public sectors, and has worked across various industries including energy, infrastructure, manufacturing, retailing and the financial services sector.
Lady Barbara is currently national chairman of the UK’s Institute of Directors and completing her second term as chairman of the UK’s Pension Protection Fund. She’s also a UK Business Ambassador.
Previously, Lady Barbara was a Commissioner of the US Securities and Exchange Commission and subsequently deputy chairman of the UK’s Financial Reporting Council. She has also been a Public Member of the International Ethics Standards Board for Accountants.
Speaking about the appointment, Cifas’ CEO Simon Dukes said: “I’m delighted that Lady Barbara will be joining Cifas as our new chairman. She’s a well-respected figure across both the public and private sector industries and has had a formidable career leading multiple high-profile organisations.”
Dukes continued: “Cifas helped its members save over £1 billion in fraud losses in 2015 and, over the years, we’ve grown from a small not-for-profit, credit industry-focused fraud prevention system into the UK’s fraud prevention service, working with more than 360 organisations spanning the public, private and charity sectors.”
In conclusion, Dukes explained: “Our vision for the future is an ambitious one. That is to prevent even more fraud and financial crime in the UK. Lady Barbara has an impressive combination of skills and industry knowledge to help lead and support Cifas as we continue to grow and develop our offer, and I look forward to working with her to carry on the outstanding work and innovation achieved under Ken Cherrett’s chairmanship.”
Lady Barbara Judge said: “I’m very excited about the opportunity to join Cifas as its chairman. I’ve been a real admirer of Cifas’ accomplishments over the years, and I very much look forward to working with the Executive to expand the membership and help raise awareness of fraud and fraud prevention in the UK.”