UK counts the mounting cost of fraud

UK fraud

The annual cost of fraud in the UK could be as high as £193bn (US$284bn) according to a revised estimate today, dwarfing previous estimates produced by the government which in 2013 put the figure at around £50bn per year.

The Annual Fraud Indicator 2016 was overseen by the UK Fraud Costs Measurement Committee (UKFCMC), supported by information services company Experian and accountancy and business adviser PKF Littlejohn. It is based on research by University of Portsmouth’s Centre for Counter Fraud Studies.

The UKFCMC has revised and renewed research undertaken by the government up to 2013. It calculates the true cost of fraud – an average of more than £3,900 per adult in the UK with losses taking place at a rate of £6,000 per second.

The private sector has been under the biggest attack from fraudsters, with both small to medium enterprises (SMEs) and large enterprises losing an estimated total of £144bn a year. By far the biggest source of fraud for these businesses relates to procurement, amounting to £127bn.

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 and the breadth of fraudulent activity it is susceptible to.

“The startling figures that have come out …illustrate the scale of the fraud problem currently facing the UK,” said Nick Mothershaw, director of fraud and identity solutions at Experian. “£193bn per year underlines that there is much more still to do, despite evolving anti-fraud measures.

“And it’s not just a problem for UK government, businesses and charities. Although 95% of the fraud taking place is not 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 is buying a washing machine or putting money into a savings account, is affected by the fraud epidemic”.

In addition to procurement fraud, the main types impacting UK businesses include:
• Payroll fraud, which accounts for losses of £12bn per year – 8% of the total cost of fraud to the private sector.
• The charity or ‘third sector’ is hit with fraud costs of £2bn per year.
• Mortgage lending, which suffers losses equivalent to £1.3bn annually and in which 84 applications out of every 10,000 are suspected to be fraudulent.
• Insurance sector fraud, costing £1.3bn a year through illegitimate claims with an estimated 350 frauds every day.

Fraud in the public sector of around £37.8bn is equivalent to 5.5% of the £694bn spent annually. Central government bears the majority of this cost at around £30bn per year. Procurement fraud is again a major source of losses, costing central and local government a combined £10.5bn per year.

Other key areas hitting government budgets include:
• Tax fraud costing £15.4bn every year, equal to 3% of the total tax revenue;
• Fraud losses in the National Health Service (NHS) relating to income and expenditure amounting to £2.5bn;
• Housing tenancy fraud, estimated to cost £1.7bn;
• Benefit and tax credit fraud, estimated at £2.4bn;
• Grant fraud, which is estimated to cost £2.7bn.

The cost of fraud carried out directly against individuals is now £9.7bn per year with identity fraud being the single largest contributor at almost £5.4bn. It is estimated that there are up to 3.25m victims and the rise in identity theft coupled with the prevalence of cyber-crime suggest this figure will grow.

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