The cost of fraud

2009 was a year where fraud was rarely out of the headlines. Online banking fraud increased by 55%, insurance fraud rose by 24% to £1.9 billion and identity fraud rose 74% in the first half of 2009 alone.

There was a 72% increase in the number of directors disqualified for financial crime and the number of reported frauds was up by 72%. The biggest fraud ever, involving Bernard Madoff and $65 billion, reached court and almost every area of the economy showed major increases in fraud - including the legal sector.

Professional indemnity insurance more costly

Claims against solicitors started to rise during the recession with many being due to mortgage fraud. Fraudsters who took out mortgages using false documentation left their lenders with huge losses when they defaulted on their repayments. A number of lenders have since attempted to recoup losses from the solicitors involved in the transactions. As a result, current indications are that the market for professional indemnity insurance in 2010 is becoming more costly for solicitors.

However, the good news is that fraud is a financial cost that can be measured and reduced like any other. Indeed, one of the biggest studies of fraud ever undertaken* found that two thirds of organisations lose between 3% - 9% of their expenditure to fraud.

Nevertheless, there is evidence that when accurately measured and understood, this can be reduced by up to 40% within 12 months, with a 12:1 return on the costs of the work.

Contact us

For more information about reducing fraud, contact Jim Gee, Director of Counter Fraud Services, on 020 7429 4100 or email jim.gee@mhllp.co.uk

*'The Financial Cost of Fraud Report', published by MacIntyre Hudson and the Centre for Counter Fraud Studies at University of Portsmouth in November 2009.