Fraud in the private sector

Our economy is currently losing an estimated £30.5 billion a year through fraud (1). That represents 2.2 percent of GDP, 3.5 percent of the national debt, and is more than double the £13.9 billion worth of direct fraud losses identified by the Association of Chief Police Officers in 2007 (2).

And that is simply what can be estimated today. By its nature, estimating losses due to fraud is a dark art. But what we do know is that as households face mounting economic pressures, fraud is likely to increase, the nature of it is likely to change, and it is being committed by ordinary people as well as sophisticated criminal gangs.

This report looks at how this is playing out in the private sector, where more than £9.3 billion of fraud is estimated to take place. We review the key trends in fraud, look forward to how they might play out in the future, and what we can do as individuals and organisations to combat it.

What are the shifts? Firstly, a massive increase in first-party fraud; individuals lying or omitting key information on lending or insurance applications, job applications or insurance claims. Those closer to the edge financially are, and will continue to be, where first-party fraud is concentrated, but we see a big increase in wealthier demographic and geographic areas as well.

Third-party fraud is also on the up, and it is moving closer to home. Fraudsters used to travel to commit fraud; today they also focus locally. Once the bane of SW1X and SW3, now postcodes such as E14 are on the target list. Favoured techniques include address forwarding, but we all need to be on our guard against account takeover and identity theft, especially with the increased sharing of career details on the internet.

Fraud is changing as well; with approaches such as ‘bust out’ becoming more popular as lending applications fall. It is harder to spot, and requires financial institutions to link the activities of individuals and households across current accounts and lending to pre-empt the bust out.

How to combat this rise? As individuals, we need to safeguard our information and ensure that we watch for any activity that appears to take place in our name. As organisations, we need to focus not just on preventing fraud at the front door, but on an ongoing basis as well – both amongst our employees and customers. Culture is key and needs to start from an audit committee constantly asking the question to every employee in the business.

In many cases, we also need to remember that fraud is the result not of an evil gang, but individuals who are financially stressed. Identifying the bad from the pressured is important, and by putting controls in place, it helps those who are facing challenges not to walk down a path it will be harder to come back from.

Charlotte Hogg, Managing Director, Experian UK & Ireland

(1) Source: National Fraud Authority, 21-Jan-10: http://www.attorneygeneral.gov.uk/nfa/WhatAreWeSaying/NewsRelease/Pages/release210110.aspx

(2) Association of Chief Police Officers, 06-Mar-07: http://www.acpo.police.uk/pressrelease.asp?PR_GUID=%7B40F292C5-F97A-4A5B-BCC8-C579F140E01C%7D