CIFAS – the UK’s Fraud Prevention Service today releases The True Cost of Insider Fraud, A report based on research conducted by the University of Portsmouth’s Centre for Counter Fraud Studies. The findings give organisations much food for thought:
- Losses from internal frauds do not just include the sum lost to a fraudster, but encompass a variety of additional costs such as investigations, disciplinary costs, fines/compensation payouts and ‘intangibles’ such as the net impact upon morale, reputation or share price.
- The smaller the cost of the initial fraud, the greater the increase in the total cost: for example, frauds below £25,000 can incur additional costs nearly three times the size of the initial loss.
- Public and private sectors differ in the size of losses accrued, particularly with lower level frauds (e.g. under £25,000).
- The average cost of all frauds examined was 14% greater than the initial sum lost to the fraudster.
Understanding the impacts of internal fraud
The vast majority of an organisation’s staff are completely trustworthy. Unfortunately, the few exceptions can cause immense damage to an organisation’s financial and reputational wellbeing. By being able to demonstrate just how much greater the average cost of such frauds is to an organisation, this research underlines the need for organisations to appreciate both the scale of the damage done by internal fraud, and the need for adequate vetting.
Simon Dukes, CIFAS Chief Executive, comments: “It is easy for employers to be lulled into thinking that internal frauds are few and far between and also small scale. The findings contained within this report demonstrate, however, that every instance of internal fraud will have repercussions far greater than the initial financial loss. In addition, over recent years, the theft of customer data from inside an organisation has become more common: this data is frequently passed to organised criminals and helps to fuel identity crimes as they impersonate victims and steal from customer accounts. Organisations must therefore recognise that such frauds are anything but small scale and inexpensive and that doing everything possible to prevent internal fraud is vital.”
Prevention is better than cure
The findings presented in this report underline that investment in preventative measures such as enhanced vetting, monitoring, training and data sharing are essential in order to avoid the collateral damage that invariably accompanies the financial loss incurred by an internal fraud. Comprehensive HR and fraud prevention strategies are the cornerstones for any organisation wishing to instil a zero-tolerance attitude to fraud.
Simon Dukes concludes: “The cost of fraud is much more far-reaching than a fraud loss figure on the bottom line caused by one rogue individual. This report demonstrates just how much greater those impacts can be. With total costs nearly quadrupling the initial amount lost on smaller frauds (and the cost of investing in preventative steps like our Staff Fraud Database being as little as £10.50 a day) this is a warning to all organisations that they risk making themselves a sitting target if they do not recognise that prevention is far less costly than cure, and invest in a comprehensive and coherent strategy to prevent internal fraud.”