The new National Fraud Authority (NFA) estimates and comprehensive data breakdowns are said to be “testament to improved methodologies and co-operation across Government and industry”.
Importantly, the data also shows the real impact fraud has on individuals, businesses and Government.
The loss estimates to fraud by sector are as follows: public GB pound 21 billion, private GB pound 12 billion, individuals: GB pound 4 billion, charities: GB pound 1.3 billion.
As you can see, the public sector accounts for the highest proportion of fraud losses at GB pound 21 billion, which represents 55% of the total figure. For the first time, this estimate includes new and more accurate figures for procurement (which stands at GB pound 2.4 billion) and grant fraud ( GB pound 515 million).
At least in part, the size of the public sector estimate is due to diligence in reporting fraud loss data combined with more comprehensive measurement techniques than other sectors.
It’s 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.
Cross-Government Counter-Fraud Taskforce
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’s work – to help central and local Government cut key fraud risks and deliver savings.
Also for the first time, collaboration with the charity sector has enabled the NFA to provide an accurate estimate of the level of fraud within this sector.
The final GB pound 1.3 billion figure was identified in a survey the NFA conducted to gauge how fraud affects the sector. Over 1,000 charities responded, and the final estimate represents around 2.4% of the total charity sector turnover.
The NFA and the Charity Commission are working closely on a number of counter-fraud prevention initiatives to encourage charities to build improved fraud prevention measures into their operations and develop a stronger counter-fraud culture in this sector.
Private sector fraud losses of GB pound 12 billion make up 31% of the total annual figure.
Key facts and figures outlined
The financial services industry recorded the highest loss to fraudsters (at GB pound 3.6 billion). This is a slight decrease on the 2010 AFI figure of GB pound 3.8 billion due to improved fraud prevention methods involving plastic card ( GB pound 440 million) and cheque fraud ( GB pound 30 million).
Online banking, however, has seen an increase of 14% ( GB pound 60 million). The sector continues to invest heavily in counter-fraud systems and solutions to help stay one step head of the criminals.
Mortgage fraud (which stands at GB pound 1 billion) and insurance fraud ( GB pound 2.1 billion) remain high.
A new inclusion in the AFI is fraud losses to SMEs (that figure is estimated at GB pound 780 million). The NFA and the Federation of Small Businesses (FSB) worked together to produce this estimate. It’s hoped that raising awareness of the scale of loss will spur new fraud prevention initiatives in this sector.
Individual citizens’ losses equated to 10% of the overall fraud figure ( GB pound 4 billion), covering loss from mass-marketing fraud such as share sale, lottery and advanced fee frauds as well as newer frauds like 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 ( GB pound 3.5 billion) to produce an increased figure within this AFI.
10,000 crimes totalling GB pound 93 million
Action Fraud saw over 70,000 contacts made by the public and 10,000 crimes reported totalling GB pound 93 million lost by individuals to fraudsters over the past 12 months.
The NFA and law enforcement agents 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.
Commenting on these latest figures, 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 or charity sector or as individual citizens, it’s vital we join together to take action and stem the rising tide of fraud.”
Herdan added: “The Annual Fraud Indicator is our blueprint. It enables us to gain a perspective, judge the scale of the problem and target our actions accordingly.”
Herdan believes that 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,” he continued.
“We want to develop a stronger counter-fraud culture which helps to disrupt fraudulent activity across the UK and on a global scale.”
Comment from the Cabinet Office
Minister for the Cabinet Office, Francis Maude, also commented on the AFI. “The latest National Fraud Authority estimate shows that 55% of fraud – a massive GB pound 21 billion – is committed against the public sector. That’s the equivalent of building 800 secondary schools, or employing over 615,000 nurses. It’s a problem we’re not going to ignore. Ripping off the taxpayer will not be tolerated.”
Maude went on to state: “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 at the same time stripping the civil service of vital resources.”
He concluded: “We cannot and will not 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 making serious savings. HMRC has already saved GB pound 1 million 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 GB pound 500 million- GB pound 1 billion over the next 18 months.”
Sam Younger, chief executive of the Charity Commission, explained: “We have previously said that fraud in charities has been under reported, a fact reflected in this latest report. However, it also shows that instances of charity fraud remain low. The public can be assured that the vast majority of charitable money is going straight to good causes.”
According to Younger, while no system can guarantee that any charity or business will be totally protected against loss, charity trustees must make sure that they have strong financial controls in place to protect their charities.
“One of the ways they can do this,” added Younger, “is by using the advice and guidance on our website. Charity trustees must be more fraud aware, and I hope that this report is a wake-up call to any charity who thinks fraud will never happen to them.”
Federation of Small Businesses viewpoint
Policy chairman for the Federation of Small Businesses (FSB), Mike Cherry, has commented on the AFI. “The FSB was pleased to collaborate with the National Fraud Authority in capturing the cost of fraud to small businesses, which stands at around GB pound 2,800 per business per year. These costs can hamper enterprise for small firms when, in fact, the Government is looking to them for economic growth and job creation.”
The FSB is calling on small businesses to report fraud to Action Fraud in the knowledge that this information will be used to build up a full picture of fraud and realise prosecutions.
“Despite public sector cuts, small businesses still need to see an improvement in the capability of the police when dealing with these issues on a local basis. 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 (the national lead force on fraud) commented: “With the advancement of technology we find the nature of fraud is constantly evolving. That said, 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.”
He stressed: “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 and it’s ready to lead our fight against financial crime.”
Association of British Insurers speaks out
Nick Starling, the director of general insurance and health at the Association of British Insurers, has this to say on the latest AFI: “Every household and business pays the price for fraud. The cost of insurance fraud alone adds an extra GB pound 44 every year to the insurance costs of the average household.”
To protect honest customers, the insurance industry is intensifying its efforts to deter potential fraudsters and detect more fraud.
“With many frauds cutting across different sectors,” said Starling, “the National Fraud Authority has a crucial role to play in spearheading a co-ordinated national strategy that will reduce the impact of fraud on the economy and people’s lives.”
Marcus Whittington, COO at SentryBay, outlined: “Due to the increased use of more sophisticated malware creation kits, a greater proportion of new malware is evading detection by anti-virus and anti-spyware software, and evading this detection for longer periods.”
Both Cyveillance and RSA studies confirm this, with detection rates for new malware now less than 20%, and detection rates even after a month still around 60% for even the best anti-virus software.
“Furthermore, the malware kits themselves are more focused than ever on targeting personal information, not just passwords and credit card numbers but enough data to create full identities.”
Whittington is also noticing malware attacking phones and tablets in greater quantities, with people starting to enquire more about the security required to successfully protect data and identities on these devices, not just on their PC’s and laptops.
“What the AFI trends point to is the need for financial institutions and other enterprises to take active responsibility to protect their customers’ personal information when they use the Internet channel. Not just the storing of this information internally, but protecting this data when it’s entered and transmitted.”
He added: “They should not just be providing advice on security, nor just addressing access security for the online channel, but also offer protection for all the personal and financial data that users’ submit.”
In Whittington’s view, solutions to protect this wider data are now needed to overlay basic or even more sophisticated access security and ensure customer data is safeguarded.
“Above all, these systems need to extend to mobile devices sooner rather than later,” urged Whittington.
Financial services industry: “moving in the right direction
Duncan Ash, marketing manager for financial services at SAS UK, commented: “While the financial services industry recorded one of the highest losses to fraudsters, the figure quoted actually represents a decrease on the 2010 AFI figure.”
For Ash, this demonstrates that the industry is indeed moving in the right direction through improved fraud prevention methods.
“However, fraudsters are constantly modifying their approach and, as such, fraud prevention techniques can never remain static. They need to evolve to stay one step ahead of the fraudsters.”
Ash continued: “What’s more, no single approach will serve successfully to combat fraud. It will always require the right mixture of good business practices, education, prevention and detection. In particular, banks need to focus on using analytical techniques to help secure their online banking channels in light of the 14% increase in online banking fraud.”
Ash suggested that only a system that allows behavioural profiling and analytics across multiple delivery channels and products simultaneously, and in real-time, can adequately address many of the emerging fraud trends in the online world.
Voice biometrics to the fore
Nick Ogden, CEO and founder of Voice Commerce, said: “According to the report, the cost to the private sector from fraud was GB pound 12 billion and charities lost GB pound 1.3 billion, while individuals’ losses were estimated at GB pound 4 billion. This means that, if the total cost is broken down, every Brit would be GB pound 765 worse off. That’s a fair chunk of money in today’s economic climate.”
Ogden went on to say: “In a time when identity theft and data security climb ever higher on the agenda, and the world is becoming ever more mobile, we are increasingly in need of an efficient way to identify ourselves and sign for things. Voice biometrics address this issue because they verify who the person is rather than what they know, as is the case with methods such as Chip and PIN.”
With this in mind, Ogden feels the payments industry needs to adopt a “federated response” towards fraud, and look to introduce a regulated mobile identity database.
“Only through these measures can we truly and effectively clamp down on financial crime.”
