The
Nature, Extent and Economic Impact of Fraud in the UK
This
study was commissioned by the Association of Chief Police Officers'
Economic Crime Portfolio to meet the following objectives:
* to determine as accurately as possible the nature, extent, and cost
of fraud to the public and private sectors;
* to assess the availability and quality of existing evidence on fraud;
and
* to recommend appropriate strategies to facilitate the comprehensive
and consistent recording of data on fraud
The study did not conduct original research to get a closer approximation
to the 'true cost of fraud', but reviewed a range of published material
including global surveys, national surveys and national data collection
exercises. In analysing the cost of fraud, the study adopted a conservative
position based on the lower end of estimation ranges.
Broad findings
The minimum extent of the losses borne by victims in the private
sector was judged to be as follows:
1. Financial services'(i.e. banks, building societies, finance houses,
insurance companies and their agents), fraud losses are estimated at
£1.005 billion in 2005.
2. Fraud losses to businesses other than financial services are estimated
at £0.934 billion in 2005.
3. At least another £1.821 billion should be added to the total
costs of fraud against businesses, mainly in 2005, though one cannot
tell whether these losses are to financial services or to other businesses.
4. Fraud losses against private individuals can be estimated at £2.75
billion in 2005.
The losses borne by victims in the public sector were judged to be
as follows:
1. National public sector fraud losses can be conservatively estimated
at £6.434 billion
2. For public bodies at the local level, losses are conservatively estimated
at £0.04 billion in 2005
Findings suggest that overall:
3. the direct losses from frauds of all types were at least £12.98
billion (mostly) in 2005; and
* it would be surprising if the 'true total' was not much larger than
this.
In addition,
* the known and separately identified private and public costs of acting
against fraud - both before the event and in response to it - total
£0.937 billion: this is certainly a significant underestimate.
* Together, the known costs of fraud and of dealing with fraud were
at least £13.9 billion in 2005.
Problems with existing sources of data
The review highlighted the following main problems in relation to the
existing sources of data, including the neglect of some forms of fraud
and weaknesses and inconsistencies in defining 'fraud'.
The evidence also clearly indicates that, despite the wide variety of
activities that cluster together under the label of 'fraud', there is
a common thread: namely that fraudsters are able to find or create weaknesses
in the systems, controls or procedures operated by victims or their
intermediaries.
Recommendations
In looking to ways of improving the future reporting and recording of
fraud, the discussion in the report is framed in the context that the
Fraud Review has recommended that the appropriate response to the massive
under-reporting of fraud is to establish a National Fraud Reporting
Centre (NFRC), to which businesses and individuals could report frauds.
The proposed NFRC would then be able to provide police and other investigative
agencies with information to target individuals.
Whether or not an NFRC is endorsed in the form proposed, the findings
of the current study certainly support the case for a reasonably well-resourced,
central body to 'champion' the improved reporting and recording of fraud-or
at the very least the improved study of fraud. This should produce dividends
in both fraud reduction and the apprehension and detection of the perpetrators
of fraud.
The report does however caution - in the light of the very low level
of current fraud reporting and the potential enormity of what might
follow if victims were encouraged to report all fraud - that there is
a very real danger of raising expectations for official action that
might not be able to be met, whether by the police or by any other body.