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

The Nature, Extent and Economic Impact of Fraud in the UK
2. For public bodies at the local level, losses are conservatively estimated at £0.04 billion
in 2005-06. Some deceptions against council tax may also involve deceptions to central government
departments (like DWP), so it is difficult to allocate losses to one rather than the other.
The above fraud loss figures are merely indicative. The existing sources of data on fraud are
neither mutually exclusive nor collectively exhaustive. Many high value cases that appear to meet the
criteria of criminal fraud are investigative by forensic accounting and law firms, and are treated as civil
matters for litigation and negotiation with ‘suspects’ and third parties. Before an ‘actual’ fraud comes to be
counted as such, it has to go through a process of being suspected, investigated and identified as such,
whether through accident or a more formal audit process aimed at uncovering fraud. Then a decision has
to be made as to whether to make the fraud public in some way, in aggregate form (as in APACS data on
plastic frauds) or as an identified individual case (for example via formal reporting to a policing body).
This report essentially evaluates and summarises data that reach the final stage.
It is conventional in ‘cost of crime’ studies to include the costs of preventing and responding to crime with
the direct costs of crime. Yet even in the public sector, figures on the costs of fraud investigation are
mostly unavailable outside the police, and in both public and private sectors, many fraud (and corruption
and money laundering) prevention costs are bundled together with general compliance and technological
systems; and also are not published. So, in this sense, the data here clearly understate the true cost. On
the other side of the coin, it is clear that some data collection exercises will ‘double count’ some frauds.
Overall, however, available sources suggest that:
5 excluding the cost of doing something about them, the direct losses from frauds of all
types were at least £12.98 billion (mostly) in 2005; and
5 it would be surprising if the ‘true total’ was not much larger than this.
In addition,
5 the known and separately identified private and public costs of acting against fraud –
both before the event and in response to it – total £0.937 billion: this is certainly a
significant underestimate. 5
5 Together, the known costs of fraud and of dealing with fraud were at least £13.9 billion
in 2005.
Of course, as with all crimes, the impact of fraud is more than just ‘pounds and pence’: victims vary in the
‘collateral damage’ caused and how well placed they are to recuperate from their losses, economically
and psychologically. Apart from psychological damage, there are other dimensions of harm and risk
such as:
5 the growing attractiveness of fraud to conventional major criminals and to previously non-criminal
technophiles alike; and
5 the possibilities of crimes which – unlike other forms of property crime – can be committed from
remote places beyond the easy reach of law enforcement or civil recovery.
However these issues were outside the brief of this study.
Problems with existing sources of data
The review highlighted the following main problems in relation to the existing sources of data:
5 The neglect of some forms of fraud;
5 Weaknesses and inconsistencies in defining ‘fraud’;
5
There are severe difficulties in separating ongoing costs of computer systems and of compliance with anti-money laundering
regulations from the costs of anti-fraud measures. Some private and public organisations also wish to keep their fraud
control costs private.
5