Are you a fraud victim? The answer is yes, and it's costing us all £14bn a year

Violent crime and burglary may grab the headlines, but fraud is costing business and taxpayers billions. Why then is nothing being done about it?
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The Independent Online

You may not see yourself as a victim of fraud. Most of you reading this will not have suffered so much as the misuse of your cheque card. Yet the truth is everyone in this country has been defrauded. Fraud is one great hidden tax on us all. It increases the cost of goods and services, impoverishes small as well as corporate shareholders, strikes at the future of private pensionholders, jeopardises jobs and saps faith in the City's unique standing at home and abroad.

You may not see yourself as a victim of fraud. Most of you reading this will not have suffered so much as the misuse of your cheque card. Yet the truth is everyone in this country has been defrauded. Fraud is one great hidden tax on us all. It increases the cost of goods and services, impoverishes small as well as corporate shareholders, strikes at the future of private pensionholders, jeopardises jobs and saps faith in the City's unique standing at home and abroad.

The latest research on the overall cost of fraud was commissioned by the Home Office from economic consultants NERA. The annual bill is estimated at a staggering £13.8 billion though NERA warns that these figures are almost certainly underestimates. Earlier work by the Association of British Insurers estimated the cost at £12 billion - a third of the cost of all crime. A 1998 Ernst & Young survey found that two-thirds of British companies had been defrauded in the previous 12 months and 84 per cent in the previous five years.

And fraud is a problem almost certain to get worse before it gets better; the growth of e-commerce will see to that. Worth £2.8 billion in 1999, it is an irresistible target for fraudsters because it makes their crimes both swifter and harder to track. It is already clear that corporate defences, both internal and external, are inadequate to the task. DTI-sponsored research has estimated that 89 per cent of businesses using electronic links do not have firewall systems to repel electronic intruders. Fifty-nine per cent have unprotected websites; only 37 per cent have conducted a risk assessment on information security.

Small wonder that the National Criminal Intelligence Service now places fraud on a par with drug trafficking as a major crime threat. Yet our overall national response remains well below the level of events. Changes in the law, court procedure, police priorities and resources, business and professional training and corporate practice are all urgently needed. Too many people appear to believe that fraud can be kept in the bottom of the in-tray. The cumulative impact of such an approach is to lay out a red carpet for economic crime. We can console ourselves that Britain is not at the level of the European Commission where massive fraud has resulted in next to no penal consequences, making any claim to the existence of an effective rule of law in the EU appear tenuous in the extreme. There is a growing recognition of the problem in parts of Whitehall. But we all suffer from the Government's refusal to allocate necessary resources and award the fight against fraud the priority it deserves.

It is remarkable that fraud does not figure in either the Government's Crime Reduction Strategy (published in November 1999) or its New Overarching Aims and Priorities for the Police Service (published in August 1999). Chief Constables will gain little praise, and no additional funding from government if they initiate a determined drive against fraud.

This lack of interest is reflected in a serious decline in the number of police officers assigned to fraud squads which are increasingly used as a reserve for other major incidents. Some have been disbanded altogether. KPMG estimates that only 600 officers are involved in investigating commercial fraud and SFO Director Rosalind Wright has recently pointed out that some forces are having to decline investigations. Moves to involve regulated private investigators in fraud cases is a helpful step, but is no substitute at all for adequate police resources.

Nor is official neglect entirely a question of money. Though the Home Office commissioned the NERA survey there are no regularly collected official figures on the problem. This not only causes the problem to be marginalised politically; it also prevents the most effective allocation of police resources to the problem.

Just and effective laws, powers of enforcement and court proceedings are essential elements in the fight against fraud. Yet, despite the best efforts of the prosecuting authorities, arrangements for serious fraud trails still often involve long delays in reaching the preparatory stage, over-extended hearings arising from a lack of prior definition of issues and lack of support for judges trying to assimilate large quantities of technical evidence.

It would be comforting, but untrue, to claim that business is treating the problem much more seriously than government. Boards and their audit committees need to spend more time than hitherto considering their company's risk management and control systems. Continuing best practice must be embedded in corporate culture and not expressed via mere box-ticking. Nor is interest in the mechanics of control enough; there must also be a positive anti-fraud policy supported by staff training at all levels. Yet research by the Fraud Advisory Panel in 1999 suggested that training ranges from rudimentary to non-existent in far too many companies. Many academic institutions fail to include anti-fraud training in their syllabuses. One course administrator has expressed the fear this would deter students and the companies that sponsor them. Few institutions offer fraud studies as part of their MBA course. Nor is professional education in a better state.

The Fraud Advisory Panel, an independent, multi-disciplinary body supported by the Institute of Chartered Accountants in England & Wales, has recently published proposals aimed at raising the national game in this area. They include:

* Making fraud a police priority and mandating individual police forces to ready anti-fraud strategies. Chief Constables must be given resources to implement these changes.

* Reforming procedure in serious fraud trials; this would significantly advance both the interests of justice and public respect for the entire system.

* Convening a national conference of professional bodies and providers of business qualifications to consider improvements in the provision of fraud education and training.

* Creating a National Anti-Fraud Commission as a high profile forum for debate and a source of authoritative recommendations to government. Such a body could keep fraud high on political, commercial and policing agendas.

* Establishing a National Fraud Loss Study which would conduct an authoritative annual survey for submission to government and debate in Parliament.

Society possesses the knowledge, skills and mechanisms with which to fight fraud effectively. The challenge lies in raising awareness and getting priorities right. Start by thinking of that hidden tax the next time you pay a bill.

 

George Staple QC is Chairman of the Fraud Advisory Panel and a Partner at Clifford Chance. He was Director of the Serious Fraud Office from 1992-97