Fraudsters and mistakes cost industry trillions
Wed, Nov 18, 2009
The report shows that losses across all countries from private and public industries average 4.57% of expenditure – equivalent to the cost of healthcare worldwide for a year, or the entire GDP of the UK or France.
The authors say that every organisation, from businesses to government departments, can expect to be losing between 3-9% of income to fraudsters and errors.
Dr Mark Button, Director of the Centre for Counter Fraud Studies at the University of Portsmouth, co-authored the report with Portsmouth colleague Graham Brooks and law firm MacIntyre Hudson.
It examines 132 exercises undertaken over the last 10 years in 44 organisations in nine countries. Two thirds of those examined showed losses to fraud or error of more than 3%. The level of accuracy varies from plus or minus 1 – 2.5% and the statistical validity from 90 – 95%.
Losses were measured across a range of services including payroll, procurement, housing, education, social security, healthcare, insurance, tax credits, pensions, agriculture and construction.
In healthcare organisations averaged losses of 5.59% of expenditure. Common frauds in healthcare in the UK included:
- Staff claiming for over-time not done.
- Dentists claiming for more NHS work than they have done.
- Consultants doing more private work than they claim.
- Patients claiming for free prescriptions they are not entitled to.
- Foreign patients receiving free care they are not entitled to.
Dr Button said: “This report shows three main things. First, losses to fraud and error can be accurately measured; second, the losses are significant; and third, that with the right focus they can be reduced relatively quickly, just like any other business cost.
“The report’s findings also highlight the benefits of being able to accurately measure these losses. Now that this is possible, informed judgements can be made about how much time and effort should be spent in trying to tackle this problem. Losses to fraud and error can and should be treated as a business cost like any other – to be tracked and reduced.”
The report states that where organisations have undertaken repeated exercises to measure their losses to fraud and error they have significantly reduced the amount lost. In Britain, the NHS cut its losses to fraud and error by up to 60% between 1998 and 2006. In the US, the education department reduced losses by 35% between 2001 and 2005.
Jim Gee, Director of Counter Fraud Services at MacIntyre Hudson, said: “This report highlights one of the last great unreduced business costs. We can now go beyond reacting to unforeseen individual instances of fraud and to include plans to pre-empt and minimise fraud losses in business plans. The report shows the serious level of ongoing losses but also highlights the success stories where losses have been significantly reduced over a short timescale.
“The evidence in this report shows that any organisation should expect its losses to be in a range of 3 – 9%. In a tough economic climate, tackling fraud and error effectively, is one of the least painful ways of making cost reductions and the evidence shows that return on the costs of the work can be as high as 12 : 1.
“Reducing losses to fraud and error should also be an important factor in the current debate about public expenditure reductions – the more fraud and error in public expenditure can be reduced, the better public services can be, and the less the burden on the taxpayer.”
The report is published today and will be updated each year as new data becomes available. It is designed to encourage organisations to measure fraud regularly and the authors have sent copies of the report to MPs, senior counter-fraud specialists and all FTSE 100 companies.