The Nature, Extent and Economic Impact of ... - Cardiff University

The Nature, Extent and Economic Impact of Fraud in the UK
EXECUTIVE SUMMARY
This study was commissioned by the Association of Chief Police Officers’ Economic Crime Portfolio to
meet the following objectives:
5 to determine as accurately as possible — from existing published sources of information — the nature,
extent, and cost of fraud to the public and private sectors;
5 to assess critically the availability and quality of existing evidence on fraud; and
5 to recommend appropriate strategies to facilitate the comprehensive and consistent recording of data
on fraud (i.e. strategies for future data capture).
The study did not conduct original research to get a closer approximation to the ‘true cost of fraud’.
Broad findings
There has not been the kind of centralised effort into estimating the extent of fraud that there has been
into other areas of unreported and unrecorded crime: indeed it is not always obvious to victims
themselves, or to outside observers, whether or not fraud has been committed. Nor has there been
much effort in either private or public sectors to drill down into the social and economic costs of fraud.
Nevertheless, substantial and varied data about many types of fraud in the UK are available. For each
sector, this research sought to summarise data availability and deficiencies; the reasons underpinning data
collection; data collection methods; and the known costs of fraud—divided into the direct (transfer) costs
of the fraud, the costs of preventing fraud and the costs of responding to fraud after the event. Data on
the costs of responding to fraud and of fraud prevention are particularly sparse, and for clarity, they have
been kept disaggregated from fraud losses to victims.
The studies reviewed in this research encompass global surveys (from which UK data can be drawn),
national level surveys (both rolling and snapshots), through to national data collection exercises drawing
on administrative data compiled by umbrella organisations, often focussing on particular types of fraud (as
reflects their funding and member interests). Indeed, in the absence of a more systematic overview such
as this (and, to a lesser extent, the NERA 2000 study that preceded it), something of a ‘free market’ in
information about the cost of fraud has developed. The publicity given to the ever-higher ‘estimates’ of
fraud bears little relationship to the scientific rigour (or cost) of the studies themselves.
In analysing the cost of fraud, the study adopted a conservative position based on the lower end of
estimation ranges. One consequence of that is that the aggregate cost figures in some sectors are lower
than might be expected if better research were available. The data below are principally from 2005 or
shortly before, but the lag in awareness of longer-term frauds (and the fact that some data such as
income tax returns need to be filed only after the event) mean that some will date back years; and
whereas the private sector data are generally based on calendar years, the public sector typically uses
financial years, making impossible their integration into annual snap-shots. The ‘health warning’ on these
data is that because of uneven awareness and reporting, and the different approaches adopted in
surveys/ studies, they may not reflect the ‘true’ distribution of fraud. Moreover, the extent and nature of
fraud are shaped by organisations’ business and service activities as well as by their culture, transparency
and prevention efforts (plus offender skills/energy).
The minimum extent of the losses borne by victims in the private sector was judged to be
as follows:
1. For businesses in the financial service sector (i.e. banks, building societies, finance houses, insurance
companies and their agents), some data are quite robust and some result from the administrative
3