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Daily Insurance Industry News
Tuesday 20th of February 2018
January 9, 2012

Cost of fraud up 50%

by Gill Montia

Story link: Cost of fraud up 50%

The value of reported fraud in the UK rocketed to £2.095 billion in 2011, according to BDO’s latest FraudTrack report.

The figure is up 50% on 2010 and the highest ever recorded by the accountancy firm.

The analysis, which is based on reported fraud cases over £50,000, also shows a dramatic rise in the average value of cases: in 2011 there were 413 reported cases, at an average value of £5 million, compared with 372 cases in 2010, at an average value of £3.7 million.

After dominating fraud figures in recent years, the finance & insurance sector accounted for only 27% of all reported fraud in 2011, compared to 56% a year earlier.

BDO’s head of fraud, Simon Bevan, comments: “Financial services institutions have invested heavily in systems and technologies to prevent and track fraud, so the fact that reported fraud in this sector has decreased as a percentage of overall fraud suggests this approach is working.”

However, in financial services, fraud is often committed by employees and management and Mr Bevan warns that some firms are currently too focused on preventing external fraudulent activity.

He recommends that organisations take a “profit and loss” approach to fraud risk, focusing on areas where most money is received or paid, as this is where the greatest fraud risk lies.

The research also reveals that there has been a boom in reported fraud in the retail sector, which accounted for 12% of all fraud in 2011, compared with 2% a year earlier.

Other key findings in the 2011 BDO FraudTrack report are as follows:

Tax fraud accounts for the highest percentage of fraud committed, at just over 36% and with an average cost of £13 million – significantly higher than the average across all frauds (£5 million).

Employee fraud is down to 10% from 14% in 2010. The average per fraud is £1.4 million.

Cases of corruption are steadily increasing from less than 1% in 2009, to just under 2% in 2010 and rising to 4% in 2011.

Management fraud has been steadily decreasing – at 5.5%, the 2011 figure is the lowest in four years.

 

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