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The costs of fraud

Fraud is a serious crime and the threat, harm and loss caused by it are one of the greatest challenges currently facing the police service in the UK.

The cost of fraud goes well beyond simple financial losses. The threat of fraud exists not just to individuals and organisations, but to the UK’s national security, economy, society and infrastructures.

In this step, we’ll take a closer look at just how serious the effects of fraud can be and how the numbers of fraud cases have risen dramatically in recent years.

Here are some effects of fraud crime on different levels.

Effects of fraud on the individual

The effects of fraud on the individual can be devastating.

Fraud victims feel they have been robbed of their self-confidence and self-esteem and suffer feelings of anger and betrayal and could lose their ability to trust others.

Effects of fraud on organisations

Organisations can suffer reputational damage, a drop in public confidence and even potential business failure. In some cases, fraud could even lead to contamination of supply chains, as seen in the Tesco horse meat scandal in the UK (Fletcher 2013)

The financial cost of fraud

It has been calculated that the UK suffered up to £193bn as a result of fraud in 2016 (University of Portsmouth 2016) and the average fraud loss is £110bn each year (Gee 2018).

The growth of fraud

Worryingly, the volume of fraud has increased dramatically in a very short space of time.

From March 2018 to March 2019 alone, for example, the number of fraud crimes reported to the police in England and Wales increased by 17% to 3,809,000 offences (ONS 2019).

Why has the volume of fraud increased so dramatically? The main driver is the development of communication technologies. Before the 21st century, most fraud crimes were committed by criminals in person, via mail or the telephone, all of which limited its scope. However, the growth of the internet has increased fraud risk significantly. The historical factors limiting the growth of fraud crimes and recent developments accelerating it can be seen in the diagram below.

A schematic diagram illustrating the balance increase and shift between fraud historically and fraud nowadays. Historically: drivers were personal interaction/use of written words. Nowadays: drivers are linked to the accessibility, use of the internet and speed of money movement Click to expand


References

Fletcher, N. (2013) ‘Horse Meat Scandal Wipes £300m off Tesco’s Market Value’ The Guardian [online]. available from https://www.theguardian.com/business/marketforceslive/2013/jan/16/horse-meat-tesco-market-value-shares [25 June 2019]

Gee, J. (2018) ‘The Financial Cost of Fraud’ Crowe UK [online]. available from https://www.crowe.com/uk/croweuk/insights/financial-cost-of-fraud-2018 [25 June 2019]

Office for National Statistics (2019) Crime in England and Wales: Year Ending March 2019 [online]. available from https://www.ons.gov.uk/peoplepopulationandcommunity/crimeandjustice/bulletins/crimeinenglandandwales/yearendingmarch2019 [6 August 2019]

University of Portsmouth (2016) Fraud Indicator [online]. available from http://www2.port.ac.uk/centre-for-counter-fraud-studies/publications/ [25 June 2019] n.b. you will need to scroll down the page to 2016 and click on the link with the title Fraud Indicator 2016


Further reading

Home Office (2018) The Scale and Nature of Fraud: A Review of the Evidence [online]. available from https://www.gov.uk/government/publications/the-scale-and-nature-of-fraud-a-review-of-the-evidence [11th July 2019]

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This article is from the free online course:

Fraud Investigation: Making a Difference

Coventry University