Understanding the UK Fraud Pandemic: Size, key areas of growth, and how Government can use technology to play a role in turning the tide.
According to the National Fraud Authority[1] (NFA), public sector fraud costs the British taxpayer around £20.3 billion per year, equating to roughly three pence of every pound spent by the government. The Chancellor of the Exchequer announced in the 2020 budget that the UK Government were reducing spend on foreign aid from 0.7% to 0.5%, meaning the State currently “spends” six times as much on fraudsters as it does on foreign aid. This £20B pales into insignificance when compared to the wider ONS statistics for fraud committed against the public and businesses that are now burdening Government Departments and police forces. Estimates from the Crime Survey for England and Wales (TCSEW) showed there were 4.5 million fraud offences in the 12 months to December 2020. The National Fraud Intelligence Bureau (NFIB), receiving information from Action Fraud, CIFAS and UK Finance, produced their latest figures, which showed overall a similar number of fraud offences in the year ending December 2020 (754,592 offences) compared with the previous year (743,380 offences). The NFIB results show an 8% increase in the number of fraud offences year on year, despite criminal offending rates covering all forms of criminality decreasing by 10% over the same time period.
Fraud Most Prevalent Form of Crime in the UK
There were over 830,000 “fraud and computer misuse related offences” committed in the year to March 2021 and the NFIB confirm there were 6,388,000 incidents of fraud reported and over 5,000,000 victims in 12 months. With the UK population exceeding 67 million in 2020, that’s nearly 7.5% of us reporting being the victim of fraud in one year!
Fraud constitutes just over 18% of ALL “victim-based crime” reported within the UK according to the Home Office “Police Reported Crimes” March 2021 and just shy of 13% of police recorded crimes to the year ending March 2021. From our client interviews3 and reported statistics we can only see this trend increasing, yet again, as we move into 2022. We are left with categoric evidence that fraud is the most prevalent form of offending, it’s growing when other crime rates are not, it creates more “victims” than any other form of offending in the UK and the State loses over £20billion per year as a result.
Experience tells us that a high proportion of frauds either aren’t spotted for a long period of time or the victim’s decide not to report identity thefts or cloned cards to the police because it’s not worth the hassle
How did Fraud Activity Change in 2021?
The Good News
Trends published by CIFAS, UK Finance and Action Fraud, comparing April 2019-March 2020 rates to those ending March ’21, show that “banking and credit industry fraud” has decreased significantly over the pandemic, dropping from 433,336 cases to 393,068 (a 9% reduction); a re-assuring change given that criminals had hitherto been using instant and real time payment networks and providers to steal and launder funds – concealing their tracks and leaving banks, the state or consumers to pay for the losses. Data breach occurrences lie at the heart of this form of offending, suggesting that financial services providers cracking down on these risks are reaping rewards. In addition, “Corporate fraud by employees” or in “procurement” is down by 40% and “pension fraud” down by 39%
Many types of fraud are on the rise…
In the year ending December 2020, UK Finance reported 2.9 million cases of fraud involving UK-issued payment cards, remote banking, and cheques. This represents a 4% increase compared with the previous year (2.8 million). There has been a 68% increase in “remote banking” fraud (73,640 incidents) reflecting the greater number of people now regularly using the internet, telephone and mobile banking for payments.
Action Fraud showed a 38% increase in “online shopping and auctions” fraud in the latest year (86,984 offences), triggered, no doubt, by lockdown restrictions and more people ordering goods and services online.
“Consumer and retail fraud” has risen by 30% to 155,000 cases. This is compounded, of course, by the replacement of point-of-sale transactions with “card not present activity” – think stolen payment card details being used and a “mule network” being deployed to receive or sometimes collect the goods prior to the fraud being known. This all places a heightened level of scrutiny on vendors and financial service providers to have adequate processes in place for Identification and Verification checks (“IDV checks”) as well as transactional monitoring tools and enhanced due diligence profiling. With these checks in place, the State would have far fewer cases to investigate and prosecute.
Action Fraud showed a 38% increase in “online shopping and auctions” fraud in the latest year (86,984 offences), triggered, no doubt, by lockdown restrictions and more people ordering goods and services online.
Which other industries have suffered most from fraud?
Insurers
Insurance fraud has risen significantly from 10,278 to 16,907 reported cases (a 64% increase in one year). Recent technological advances in automating fraud checks for ghost broking rings and other such organised crime groups, has meant that insurers have started to repudiate more claims at source.
Finance
Advanced fee payment fraud” is up 13% to 50,000 cases a year and “financial investment fraud” is up 44% to 20,260 cases per year. The extent of Bounce Back Loan frauds is not yet clear, but all estimates point to unprecedented levels of abuse in this much needed, State backed scheme.
These statistics show that the biggest victims of fraud in the current climate are the State, insurance companies, anyone selling something online and financial services providers.
The question remains therefore what options are available to the UK Government, through its various departments, agencies and police forces to help businesses and the public sector better detect, deter and investigate and prosecute fraud in 2022?
Tackling the Problem
Government Departments have made plain their awareness of the problem and set out plans to meet it head on.
Policing
This year City of London Police launched a formal tendering process to replace the tool known as “Action Fraud”. That process is ongoing and will lead to three separate “Lots” of activity being provided by one or several companies ranging from large ‘System Integrators’ to small tech companies with discreet and specialised teams that solve distinct pieces of the fraud puzzle. The aim of such a project, one must imagine, being to reduce backlogs in fraud investigations, increase detection rates, bring efficiencies through technology and to stop the “fraud pandemic” that has been with us far longer than the viral one!
FCA
The UK’s Financial Conduct Authority (FCA) published its business plan for 2021-22. With Nikhil Rathi, Chief Executive of the FCA, stating,
“We have 2 key tasks – to make markets work better and to stop and prevent serious misconduct that leads to harm. The organisation is transforming to achieve these goals – investing in new technology and making better use of data, supporting our people and changing our culture, working in partnership with other organisations in the UK and globally. We are committing to clear measures so we can be held accountable for our progress.”
Within that business plan, the FCA specifically reference how they plan to deal with “Fraud” by carrying out proactive surveillance and monitoring, with clear prioritising so that they can “intervene more quickly and decisively, disrupting the work of fraudsters, and identify the right intervention” – whether by the FCA, or by our counter-fraud partners, removing fraudsters who are FCA-supervised from the financial services system and working closely with our anti-fraud partners to maximise our collective fight against fraud.
HMRC
In July 2021, Janet Alexander, Director Covid, Customer Experience, Professionalism and EU Transition (CEPET) at HMRC responded to the Public Accounts Committee report on “Fraud and Error” (which said that up to £27billion in bounce back loans may not be repaid due to businesses either entering administration or fraud) saying,
“HMRC is measuring the level of error and fraud within the Coronavirus Job Retention Scheme, Self-Employment Income Support Scheme and Eat Out to Help Out scheme. WE have already opened 12,000 inquiries into suspicious claims and have made eight arrests with more in the pipeline”
Doubtless all those with an interest in fraud detection and investigation will be keeping a close eye on the prosecution rates that follow these unprecedented levels of reported crime, but you might think that the key to getting the culprits into court lies not with the lawyers and prosecutors, but with those charged with finding them in the first place. For too long fraud has been the crime filed in the “too difficult to investigate” category. Something needs to change.
Meeting the Challenge
The greatest tool in the fight against fraud for any law enforcement agency or police force is its people; the hard-working investigators, analysts, officers and civilian administrators who tirelessly and often turgidly evaluate cases as they arise. Their time is the most precious resource available in the fight against fraud. We can’t keep hiring an 18% larger team each year to deal with this rise in reported fraud and, in my experience of 18 years prosecuting fraud across most courts in the United Kingdom, I have never once heard an investigator tell me that they had too many people in their department or not enough crime to investigate!
If that’s the case, the State is duty bound to find and evaluate ways of making their existing teams more efficient. Cut out repetitive tasks which modern technology can accomplish infinitely quicker and with greater accuracy. Leave “people” to do what they do best; make decisions when provided with ALL the correct information regarding a suspected fraud.
These “people” have “the investigators nose”, the ‘know how’ on where to look, what’s suspicious and when further enquiries might be required.
The Solution
Prior to Co-Founding Synalogik with a former police officer and specialists from the intelligence and IT community, I was acutely aware of the delays in bringing prosecution cases together. Police analysts, digital investigators, cyber investigation teams and intelligence teams spend significant proportions of their time making enquiries into multiple different “silos” of data. The arduous task of logging in and out of multiple interfaces, sometimes on different terminals or in different buildings, with the inherent risk of human error when then combining their findings, was a perennial problem. Officers presented with hundreds of phone numbers, thousands of vehicle registrations or terabytes of accounting data can spend many hours or sometimes weeks conducting this logging in and out process as they try to find the needle in the haystack. With the research done, the team member then has to record their findings and activity in a compliant way.
Our platform
At Synalogik, we wanted to change that. We set out in 2018 to create a secure, compliant and efficient platform that allowed teams to process individual cases or bulk uploads through ALL their4 data sources and in one go. We cleansed the results and gave them the ability to flag aspects of the data that might be of concern. We gave them the ability to clash very large data sets to see where the overlap may lie and we gave them the ability to take a small piece of evidence, perhaps just a name, company or a phone number, and to find out what information there was within all their data sources about line of enquiry. Our aspirations are met each day as we continue to work with public and private sector clients to combat fraud, anti-money laundering and criminality. If you investigate fraud, manage a team of investigators, head up a Government department or want to know how we could help your business, please reach out to us at: [email protected] and we’ll show you how we can save your team time, find more fraud and enhance your reputational standing. Our team of specialist data scientists and engineers integrate our platforms with sensitive Government data sets, third party data bases and the worldwide web, using a variety of secure integration techniques. Our platforms have been approved for use for a range of Government and Law Enforcement Authority user cases as well as for Tier 1 banks, insurance companies and licensed gambling operators.
If you would like to find out more about how Scout can help you tackle financial crime, contact us below: www.synalogik.com/contact.
Daniel White, Barrister & Co-Founder of Synalogik Innovative Solutions Ltd.
[1]As published on 10th June 2021.
