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|Fraud costing the UK economy £193bn a year|
|Wednesday, 25 May 2016|
The annual cost of fraud in the UK could be as high as £193bn per year according to a new report issued today. This dwarfs previous estimates produced by the UK Government which put the figure at around £50bn in 2013.
The Annual Fraud Indicator 2016 has been overseen by the UK Fraud Costs Measurement Committee (UKFCMC), supported by Experian and PKF Littlejohn and is based on research by University of Portsmouth’s Centre for Counter Fraud Studies, 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 rate of £6,000 per second.
The private sector has been under the biggest attack from fraudsters, with both 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 - an enormous £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.
Nick Mothershaw, Director of Fraud and Identity Solutions at Experian said: “The startling figures that have come out of the Annual Fraud Indicator illustrate the scale of the fraud problem currently facing the UK. £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. It has an impact on every individual in the UK. 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”.
Jim Gee, Chair of the UK Fraud Cost Measurement Committee and Head of Forensic Counter Fraud Services at PKF Littlejohn, said: “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 get; and even charities are deprived of the full value of the donations which we make.
“It is 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.
“This report continues the Government’s work producing an Annual Fraud Indicator to provide a view of its total cost across the UK. It reflects a growing understanding that unless we understand the nature and scale of fraud we cannot apply the right solution to diminish it.”
In addition to procurement fraud, the biggest types of fraud impacting UK businesses identified by the Annual Fraud Indicator include:
Payroll fraud, which accounts for losses of £12bn per year – 8 per cent 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 just 5.5 per cent 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 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, which is estimated to cost £2.7 billion.
Professor Mark Button, Director of the Centre for Counter Fraud Studies, University of Portsmouth commented: “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 also telling is the more than £15bn lost annually to tax fraud largely from people and organisations not declaring and under-declaring income.”
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 3.25 million victims. Given the rise in identity theft and the prevalence of cyber-crime, this is only expected to grow.
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