Fraud in the Economic Downturn

8/14/2019 Fraud in the Economic Downturn

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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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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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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 [email protected] and

[email protected]
mailto:[email protected]:[email protected]://www.meritec.co.uk/http://www.counterfraudgroup.co.uk/mailto:[email protected]:[email protected]

Fraud in the Economic Downturn

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