Managing Fraud Risk: A Practical Guide for Directors and Managers

Fraud Costs – Scale and Direction of Travel

When considering fraud risk it is both important and helpful to consider some of the indicators as to the scale and size of the threat that fraud poses to society in general and to businesses in particular. An important related point is to decide whether fraud is increasing or decreasing as we move into the second decade of the 21st century. We will start by looking at the costs of fraud.

1. Costs of Fraud

Overview

Fraud used to be thought of as a victimless crime, with little visibility, awareness or sympathy from the general public. Not any longer. The actions of the authorities around the world in highlighting the issues combined with the consequences of the 2007–09 financial crisis have resulted in much greater awareness of the harm done to society as a whole by this kind of abuse. For example, the UK's National Fraud Authority published a report in 2010 estimating that the total cost of fraud in the UK is over £38 billion each year.¹⁰ This huge total is made very relevant to each of us because the report highlights that this actually represents a real cost of £765 per annum to every adult in the UK. The report talks about an inexorable “rising tide” of economic crime, a large part of which relates to tax fraud. Given the current UK Coalition government's tough programme of public spending cuts and tax rises that it considers necessary for repairing the nation's finances, the reality of tax evasion by wealthy individuals and businesses ...