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May 2016 | Fraud Prevention

The annual cost of fraud in the UK could be as high as £193 billion

It dwarfs previous estimates produced by the UK Government which put the figure at around £50 billion in 2013.

The Annual Fraud Indicator 2016 has been overseen by the UK Fraud Costs Measurement Committee (UKFCMC), supported by Experian and PKF Littlejohn and is based on research by University of Portsmouth’s Centre for Counter Fraud Studies, Europe’s premier research centre concerning fraud. The panel has revised and renewed research undertaken by the Government up to 2013. It reveals the staggering true cost of fraud – an average of more than £3,900 per adult in the UK with losses taking place at a rate of £6,000 per second.

The private sector has been under the biggest attack from fraudsters, with both SMEs and large enterprises losing an estimated total of £144 billion a year. By far the biggest source of fraud for these businesses relates to procurement – an enormous £127 billion. Procurement fraud includes crimes such as the submission of false invoices or the awarding of contracts in exchange for bribes. The report highlights that procurement is so vulnerable because of the sheer size of expenditure which it accounts for, as well as the high volume, low value nature of transactions and the breadth of fraudulent activity it is susceptible to.

The startling figures that have come out of the Annual Fraud Indicator illustrate the scale of the fraud problem currently facing the UK. Estimated at £193 billion per year, it underlines that there is much more still to do, despite evolving anti-fraud measures.

And it’s not just a problem for UK government, businesses and charities.

It has an impact on every individual in the UK. Although 95% of the fraud taking place is not a direct to end consumer cost, those lost funds are passed on to individuals in the form of higher costs on products and services. Every transaction we make, whether that is buying a washing machine or putting money into a savings account, is affected by the fraud epidemic.

In addition to procurement fraud, the biggest types of fraud impacting UK businesses identified by the Annual Fraud Indicator include:

Payroll fraud, which accounts for losses of £12 billion per year – 8 per cent of the total cost of fraud to the private sector.
– The charity or ‘third sector’ is hit with fraud costs of nearly £2 billion per year.
Mortgage lending, which suffers losses equivalent to £1.3 billion annually and in which 84 applications out of every 10,000 are suspected to be fraudulent.
Insurance sector fraud, costing £1.3bn a year through illegitimate claims with an estimated 350 frauds every day.

Fraud in the public sector of around £37.5 billion and is equivalent to 5.5 per cent of the £694 billion spent annually. Central government bears the majority of this cost at around £30 billion per year. Procurement fraud is again a major source of losses, costing central and local Government a combined £10.5 billion per year.

Other key areas that are hitting Government purse strings include:
– Tax fraud costing £15.4 billion every year, equal to 3% of the total tax revenue.
– Fraud losses in the NHS relating to income and expenditure amounting to £2.5 billion.
– Housing tenancy fraud is estimated to cost £1.7 billion.
– Benefit and tax credit fraud are estimated at £2.4 billion.
– Grant fraud is estimated to cost £2.7 billion.

The level of losses suffered by the public sector and central Government as a result of fraudulent activity are immense. Government suffers in a similar way to the private sector from vulnerabilities in procurement but also telling is the more than £15 billion lost annually to tax fraud largely from people and organisations not declaring and under-declaring income.

The cost of fraud carried out directly against individuals is now £9.7 billion per year with identity fraud being the single largest contributor at almost £5.4 billion. It is estimated that there are up to 3.25 million victims. Given the rise in identity theft and the prevalence of cyber-crime, this is only expected to grow.

The Annual Fraud Indicator, thanks to the partnership between Experian, PKF Littlejohn and the University of Portsmouth’s Centre for Counter Fraud Studies, aims to help consistently gauge, analyse and quantify the true scale of fraud in the UK. For the full report findings please click here.

Alternatively, please take a look at Experian’s new interactive Cost of Fraud tool, which illustrates what the cost of fraud could look if spent on other things, or join the conversation via Twitter #CostOfFraud.

The Annual Fraud Indicator uses methodology developed in line with the ground-breaking work of the National Fraud Authority. Estimates are intended to lay down a benchmark by which year-on-year sector-specific fraud analysis can now be made. The work is overseen by the UK Fraud Costs Management Committee, a group of cross-sector fraud experts who meet regularly to analyse fraud data, supported by a partnership between Experian, PKF Littlejohn and the University of Portsmouth’s Centre for Counter Fraud Studies.