The new estimate and comprehensive data breakdown is testament to improved methodologies and cooperation across Government and industry. It also shows the real impact fraud has on individuals, businesses and Government.
Loss estimates to fraud by sector:
- Public - £21 billion
- Private - £12 billion
- Individuals - £4 billion
- Charity - £1.3 billion
The public sector remains the highest proportion of the fraud loss at £21 billion - 55% of the total figure. This estimate, for the first time, includes new and more accurate figures for procurement (£2.4 billion) and grant fraud (£515 million).
The size of the public sector estimate is, in part, due to diligence in reporting fraud loss data, combined with more comprehensive measurement techniques than other sectors. It is 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.
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 work, to help central and local government cut key fraud risks and deliver savings.
Collaboration with the charity sector has enabled the NFA, for the first time, to provide an accurate estimate of the level of fraud within this sector. The £1.3 billion figure was identified in a survey the NFA conducted gauging how fraud affects the sector, to which over 1,000 charities responded. This estimate represents around 2.4% of the total charity sector turnover. The NFA and the Charity Commission are working closely together on a number of counter-fraud prevention initiatives to encourage charities to build improved fraud prevention measures into their operations and to develop a stronger counter fraud culture in this sector.
Private sector fraud losses of £12 billion make up 31% of the total annual figure.
- The financial services industry recorded the highest loss to fraudsters at £3.6 billion. This is a slight decrease on the 2010 AFI figure of £3.8 billion due to improved fraud prevention methods involving plastic card (£440 million) and cheque fraud (£30 million)
- Online banking, however, has seen an increase of 14% (£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 (£1 billion) and insurance fraud (£2.1 billion) remain high.
- A new inclusion in the AFI is fraud losses to SMEs at £780 million. The NFA and the Federation of Small Businesses (FSB) worked together to produce this estimate - the first of its kind. It is 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 (£4 billion), covering loss from mass-marketing fraud such as share sale, lottery and advanced fee frauds as well as newer frauds such as 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 (£3.5 billion) to produce an increased figure within this AFI. Action Fraud saw over 70,000 contacts made by the public and 10,000 crimes reported totalling £93 million lost by individuals over the past 12 months to fraudsters.
The NFA and law enforcement 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.
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 and charity sectors or as individual citizens, it is vital we join together to take action to stem the rising tide of fraud. The Annual Fraud Indicator is our blueprint. It enables us to gain a perspective and judge the scale of the problem and target our actions accordingly.
“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. We want to develop a stronger counter fraud culture, which helps to disrupt fraudulent activity across the UK and globally.”
Minister for the Cabinet Office, Francis Maude, said: “The latest National Fraud Authority estimate shows that 55% of fraud - a massive £21 billion - is committed against the public sector. That’s the equivalent of building 800 secondary schools, or employing over 615,000 nurses and it’s a problem that we are not going to ignore. Ripping off the taxpayer will not be tolerated.
“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 stripping the civil service of vital resources. We can’t and won’t 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 already making serious savings. HMRC has already saved £1m 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 £500m - £1bn over the next 18 months.”
Sam Younger, Chief Executive of the Charity Commission said: “We have previously said that fraud in charities has been under reported, which is reflected in today’s report. However it also shows that instances of charity fraud remain low and the public can be assured that the vast majority of charitable money is going straight to good causes. Whilst 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 is by using the advice and guidance on our website. Charity trustees must be more fraud aware, and I hope that today’s report is a wake-up call to any charity who thinks it will never happen to them.”
Mike Cherry, Policy Chairman, Federation of Small Businesses, said: “The Federation of Small Businesses (FSB) was pleased to collaborate with the National Fraud Authority in capturing the cost of fraud to small businesses - around £2,800 per business, per year. These costs can hamper enterprise for small firms when in fact the Government are looking to them for economic growth and job creation.
“The FSB is calling on small businesses to report fraud to the Action Fraud - in the knowledge that this information will be used to build up a full picture of fraud with prosecutions as a result. Despite public sector cuts, small businesses still need to see an improvement in the capability of the police when dealing with these issues locally. 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, National Lead Force for Fraud, said: “With the advancement of technology we find the nature of fraud is constantly evolving. But 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.
“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 ready to lead our fight against financial crime.”
Nick Starling, Director of General Insurance and Health at the Association of British Insurers, said: “Every household and business pays the price for fraud. The cost of insurance fraud alone adds an extra £44 a 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, the National Fraud Authority has a crucial role to play in spearheading a coordinated national strategy to reduce the impact of fraud on the economy and people’s lives.”
Notes to editors
- Case studies and a copy of the report are available - please contact the press office
- The National Fraud Authority (NFA) is the Government’s strategic lead organisation on counter-fraud activity.
- This year’s AFI was able to provide an even more accurate picture of fraud due to wider information sharing, the use of targeted measurement exercises in partnership with public and private sector and top-down estimates in key areas where fraud loss figures were poor or non-existent. In particular, more accurate estimates were calculated for the charity sector (£1.3 billion), small and medium size business (£780 million) and key areas of public sector expenditure such as procurement and grant award. While this degree of detail and transparency is a positive trend, NFA continues to work with organisations to encourage fraud measurement practices as well as a more open policy to sharing this information to further fraud prevention.
- If the figure could be directly broken down to cost per person, it would equate to approximately £765 per adult member of the population. This cost to the individual is reflected, for example, in increased prices for goods and services and higher insurance premiums, albeit that, insurers continue to detect more fraudulent claims.
- The AFI, by quantifying the loss, ensures the seriousness of fraud is recognised. The organisation helps to galvanise all sectors to target their counter-fraud activity and the findings of the AFI also ensure the focus remains on key enablers to fraud such as identity crime and cyber crime.