Transcript
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Benefit Fraud in theEconomic Downturn
Malcolm Gardner
Counter-Fraud Group
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An Equal OpportunitiesCrime
The Rich Very few fortunes are made without some
sharp practice at the very least and outright
thievery at the very most Nobody likes to pay tax
Professionals and Managerial The Audit Commission identified this as the
highest risk in any organisation Local Government managers accounted for
20% of internal fraud incidentsThat resulted in 80% of the value of the loss
Most likely to fiddle their expenses
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An Equal OpportunitiesCrime
Blue Collar or The Workers Often see theft or minor fraud as a
perk Stealing from stores
The Unemployed and thedisenfranchised When you have little or nothing...
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An Equal OpportunitiesCrime
In some cases it can be a culture,especially where sharp practice and
fraud become separated by only anethical point of view Ford Employees in the 1970s
Doncaster Council in the 2000s
Hedge funds, Sub-Prime Mortgages
House of Commons 2009
Mid 1990s
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Fraud
Fraud, like other crime, can best beexplained by three factors:
a supply of motivated offenders the availability of suitable targets
and the absence of capable guardians
control systems or verification
(Cohen & Felson 1979)
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Psychology of Fraud
At first glance, a psychologicalexplanation for fraud would appearsimplegreed and dishonesty. Such an explanation is, however, overly
simplistic.There are those in society who are
aggressively acquisitive but are
generally law abidingHowever, there are those in society who
are generally law abiding who becomeaggressively acquisitive when
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Psychology of Fraud
As the Sociologist and criminologistGwynne Nettler observed in 1974:
The intensity of desire and theperception of opportunity arepersonality variables The balance between desire and
opportunity moves. Temptation to steal,fluctuates with individual temperamentand situation
Motivation is therefore a combination
of an individuals ersonalit and the
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Psychology of Fraud
What we have discovered since the1970s although we probably alwaysknew it was that the risk of getting
caught was a missing variable as wasthe perception of whether the theft iswrong
Perceived risk of detection is muchmore important than the fear of
penalties in deterring crime. Social Security Research Report 64 (1997)
The general public see benefit fraudand tax evasion as much less serious
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Psychology of Fraud
The risk of fraud at any point of entry in to asystem can be expressed as r=(o*m)/(c*e) Where r=risk of fraud, o=opportunity, m=
motivation (need or desire), c=likelihood of being
caught, e=ethical standpoint on the crimePunishment does not come into the equation itis not considered Especially if being caught does not result in any
punishment
In terms of potential loss to a company youcould express it as: r=p*((o*m)/(c*e)) where p =number people (customers, staff or users)
There is another equation to be developedaround successful fraud as opposed to the riskof fraud
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Increased Risk duringan economic downturnIncreased Risk duringan economic downturnIncreased Risk during
an economic downturn
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Opportunity
Figures for the last quarter show an increase in thenumber of businesses going into administration 24.2% North East 57% Retail 23.9%
Construction 32.4% Rochdale deprivation forecast an additional 21,000 JSA
claimants by the end of 2010 10% of the boroughswhole population
This equates into opportunity for the fraudster throughcutting back or cutting corners for example Failing to properly identify customers This has already caused a rise in credit card fraud Credit and debit card fraud has risen by 25% in the last
year to 535m. Reduced training for front line staff as companies and
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Opportunity: TheInternet
Cost effective way of trading and deliveringgovernment services
Who can not love the way in which the internethas improved our lives
Without the internet could we have everhoped to have seen Angelina Jolie naked?
Or played poker with strangers a million miles away?Or helped some poor Nigerian official eradicate hismoney from a corrupt regime
Or watched that brand new movie without the need togo to the cinemaOr obtain cheap pharmaceutical without the need to sitin a doctors waiting room with people who may haveswine feverOr shared our personal details with millions of facebook
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Opportunity: TheInternet
So back to the fact that cost effectively -- especially whenyou are trying to reduce your expenditure by say 9bn peryear the clever thing to do is introduce
Electronic Portals e-Government
e-Commerce
In March 2009 APACS reported 132% increase in online fraudduring 2008
According to e-Crime Congress survey2009 62% of respondents do not believe their business devote
enough resource, time or money on locating vulnerabilities
66% believed that out of work IT technicians will turn to cybercrime and the underground economy
45% increase on phishing employees
63% increase on infected web sites
There is a lack of buy in to the extent of the risk of online fraudby executive officers
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Case Study
In 2005 more than half of the 40,000suspicious tax credit applications
detected by HM Revenue andCustoms (HMRC) during a six-monthperiod were made by organisedcriminal gangs. This forced HMRC to
close the online tax credits portal .The personal details of 13,000 civilservants working at the DWP had
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Motivation: Customers
Government is at even more risk Everyone feels that Government is a legitimate
target, the Robin Hood, Bread and Del Boymentality
Everything is regulated (3,000 new criminal offencesunder Labour) which generates resentment
In the mind of the Citizen Benefit Fraud competeswith dog fouling for what they think is the moreheinous crime
Officially benefit fraud stands at 2.2m although wealready know that it is higher and rising According to the BFI & AC, verification of claimants
within councils is higher than the Jobcentres and taxoffice but cut backs and DWP instruction is reducingthe level of verification opting instead for faster
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Analytics: Both Customers& Employees
In reality we only identify 20% of known fraudKPMG say that the only way to reach beyondthe 20% of well-known frauds is to take a data-driven approach
Effectively, data matching and mining. This involves tapping into all the data sources within
organisations such as e-mail, building access logs,telephone records and employee database activity
Analytics technology can use all this information
to uncover hidden patterns of activity linked tofraud and enable organisations to prevent fraudwhen similar patterns are detected in future,whether that is internal or external HBMS NFI
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Likelihood of beingcau ht
Most organisations believe that publicallyprosecuting fraud shows that theorganisation is weak and a victim. Being avictim is embarrassing and does notengender confidence
However, fraudsters just think they will notget caught
Create a culture of fraud: The DWPstargeting fraud is an effective campaign
Some elected members believe it is counterproductive against take-up
The Audit Commission KLoE expect councilsto pursue fraud and publicise the result
Elected members are expected to monitor
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Ethical Standpoint onthe crime
In the publics mind: Banks, insurance companies and other
financial institutions are run by crooks and
conmen, they have taken us all for a rideand therefore a fair targetThank you Sir Fred.
Government is run by greedy politicians whohave their snouts in the trough
Thank you, Jackie Smith, Geoff Hoon, Eric Picklesand the rest of you greedy buggers
When the good and the great behave in away which seems unfair and creates a one-rule society then we all return to self
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In Conclusion
Fraud will increase as Public attitudes will become more
tolerant towards low level fraud becausemore and more people will be doing it
Controls and protection drop in the rushfor market share or to handle the
increased number of claimantsMy final question is this: in 21st
Century Britain who are our moralleaders?
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The end
Malcolm GardnerThe Counter-Fraud Group and Meritec0113 286 8828mg@counterfraudgroup.co.uk and
malcolm.gardner@meritec.co.uk
mailto:mg@counterfraudgroup.co.ukmailto:malcolm.gardner@meritec.co.ukhttp://www.meritec.co.uk/http://www.counterfraudgroup.co.uk/mailto:malcolm.gardner@meritec.co.ukmailto:mg@counterfraudgroup.co.uk
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