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Fraud risks a “colossal problem”

Author: ICAEW Insights

Published: 02 Feb 2022

Sir David Green CB QC, the new chair of the Fraud Advisory Panel, on why weaknesses in counter-fraud systems and enforcement are making London an attractive place for fraudsters

Fraud is rarely out of the headlines. Only last month, in a dramatic and very public show of no confidence, anti-fraud minister Lord Theodore Agnew resigned in protest at the government’s “lamentable track record” on tackling fraud in its coronavirus support schemes. Of the more than £47bn awarded to small businesses under the government’s Bounce Back Loan Scheme, the National Audit Office estimates that as much as £5bn could be at risk from fraudsters exploiting weak checks inherent in the scheme.

The pandemic may have offered criminals extra opportunities to defraud their victims, but levels of fraud in the UK were already on the up. According to the most recent Annual Fraud Indicator, compiled by Portsmouth University’s Centre for Counter Fraud Studies, fraud is costing the UK economy £130bn each year, with losses rising by 56% in the past decade.

Despite the monumental and escalating scale of the problem, Sir David Green, who this month stepped into the role as Chair of the anti-fraud charity Fraud Advisory Panel, is well qualified to take on the challenge. With a 40-year career dealing with fraud – as a barrister at the criminal bar, as a part-time judge, as director of the (then) Revenue and Customs Prosecutions Office, and more recently as director of the Serious Fraud Office – it is fair to say Green is more than aware of the task at hand.

The risks in question span both internal fraud and external threats – push payment frauds, phishing emails and scams, blackmail through cybercrime to name but a few, but it is a changing landscape with new threats emerging on a daily basis, Green warns.

“Weakness in counter fraud systems, weak enforcement of anti-fraud measures, the ease of company creation within the UK and, frankly, the lack of deterrent in the UK because the likelihood of getting caught is pretty low – unfortunately these things have combined to make London an attractive place for people who want to commit fraud and launder money,” Green says.

The Fraud Advisory Panel was established in 1998 by ICAEW as an independent voice of the anti-fraud community to champion best practice in fraud prevention, detection, investigation and prosecution, and to help people and organisations to protect themselves against fraud. “The Fraud Advisory Panel offers a pretty unique vantage point, combining the skills and knowledge from sectors including accountancy, city law and law enforcement,” Green says.

He sees no need for a change of tack; a cornerstone of its strategy is to focus on education, and this year it will launch its Business Fraud Initiative to raise awareness of fraud risks among SMEs. “There are 5.87 million SMEs in the UK representing more than 99% of the business population, with a turnover of £2.1trn. Bearing in mind the average business loses 5% of its turnover every year to fraud, that’s £105bn a year just from the SME sector. It’s a colossal problem,” Green says.

SMEs can be particularly vulnerable to fraud, in part because only a small proportion offer counter fraud training to employees. Even if they had counter fraud strategies in place, many SMEs simply do not have the money – or at least choose not to divert resources – to put the counter fraud theories into practice. But even across the large business sector, an attitude of fait accompli appears to prevail, Green says.

“The credit card companies, the banks and the man in the street take fraud in their stride and build it into their business models; it’s seen as a cost to doing business,” Green says. “That can’t be right, particularly as new kinds of frauds are developing and taking advantage of events as they evolve. The statistics make it clear that it needs to be a priority, but it’s quite far down the list as they struggle to recover their trading position after COVID-19.”

In addition to continuing in its efforts to increase fraud awareness, including its ongoing joint initiative with the Charity Commission on preventing charity fraud, the Fraud Advisory Panel, under Green’s chairmanship, will also continue in its attempts to use its knowledge and expertise to influence policymakers, legislators and government.

The need to spend more on detection, enforcement and the legal mechanisms to recover the proceeds of fraud is something that Green says he has been championing for years, against a backdrop of political resistance, he says, to beefing up public spending on counter-fraud initiatives.

A recent report from Spotlight on Corruption sets out the statistics fairly starkly. Despite being the seventh largest economy in the world, the UK government spends just 0.042% of GDP, representing £852m, on fighting economic crime. The report argues that a proportion of the £3.9bn recovered since 2016 in the form of fines, confiscation, forfeiture and civil recovery orders from criminals and rogue companies could have been reinvested back into these agencies.

Intelligence and research using available data holds the key to more effective counter fraud activities, but that requires increased coordination between those in the counter fraud arena – including institutions and government enforcement agencies, Green says. “It’s a question of developing intelligence and handling big data so we know what’s going on and we can find out who or what is behind it.”

But what is also true, he believes, is that while increased public sector resources are needed and the state is certainly part of the solution, there is also a point when the individual must take responsibility.

Accountants play a crucial role in developing public awareness and spotting red flags. “They understand fraud better than many,” Green says. “They also play a front-line role in the battle against certain types of fraud – their training and inherent professional scepticism gives accountants an edge when it comes to spotting things that simply aren’t right.”

The Fraud Advisory Panel’s annual conference will take place on 30 March in London and online. Find out more here.

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