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Fraud: a growing problem on both sides of the Atlantic

17 February 2009

There have been a series of high profile reports published recently around the general area of fraud. This important area can have a serious impact upon your business, losing you money and reputation - both of which may threaten your ability to continue operating.

KPMG released its 2008 Forensic Fraud Barometer for the UK, reporting that more than £1.1bn of fraud came to UK courts in 2008. This is the highest level recorded since 1995 and the second highest in the twenty-one year history of the survey. Fraud by professional gangs remained at the extremely high levels seen in previous years (£800m in 2008), but there was a marked increase in fraud by individuals. Taken together, company managers, employees and customers were tried for some £300m of fraud last year, three times the value seen in 2007. The report warns that the worst is yet to come as the bulk of the fraud committed since the credit crunch began will not yet have come into the court system. The Fraud Barometer's records show that in the last recession of the early nineties the full peak of fraud in the courts was not reached until 1995.

Companies badly hit; increased fraud alert due to rising company collapses

The corporate sector suffered a five-fold increase in fraud losses in 2008, up from £24m (45 cases) in 2007 to £125m (54 cases) in 2008. For all organisations (corporates, financial sector and public sector), the fraud threat grew both internally and externally: managers accounted for £128m (£54m in 2007) and employees for £100m (£27m), while customers inflicted £65m (£25m).

Perpetrators of fraud in the corporate sector ranged from the top to the bottom in terms of seniority. Internal frauds are becoming more prevalent and this should set alarm bells ringing within organisations. In difficult times, they could even become the tipping point between the survival and demise of an organisation. Companies need to be rigorous about re-enforcing their anti-fraud measures. By reviewing their high risk and key operations, having effective reporting channels and deploying detection mechanisms they may give themselves a better chance to fight fraud.

The UK is not alone in having increasing levels of fraud. Here are some current statistics about fraud in the USA:

• More than 1,400,000 checks are forged every day! Cost in losses to US businesses is around $27.3 million daily.
• The average bank robbery in the USA nets just $250, but the average high-tech crime nets at least $50,000.
• Employee fraud costs businesses $400 billion in annual losses.
• Millions of people are victimized every year by identity theft. The average time to straighten things out and clear the damages takes two years.

Identity Theft an increasing type of fraud

Javelin's 2009 ID Fraud Report (released February 2009) confirms that the number of identity fraud victims has increased 22% to 9.9 million adults in the US, while the total annual fraud amount only increased slightly by 7% to $48 billion over the past year. The report found detection and resolution efforts are working well - consumers and businesses are detecting and resolving fraud more quickly. Additionally, the financial industry has made significant strides to resolve fraud incidents for their customers and put stronger controls in place to limit fraud, which is lessening the impact of this crime.

Other findings in this year's report reinforce the trend that when the cause of fraud is known by the victim, for instance when criminals obtain personal information from stolen physical belongings or stolen personal identification numbers (PINs), it can be relatively quickly cleared up. If you are a business which handles this sort of sensitive data you must constantly ensure that you are protecting the data.

Below we list 6 tips that you may wish to pass on to your customers:

Safety Tips to Protect Yourself from Identity Theft

1. Be Vigilant - Monitor your accounts regularly online at bank and credit card websites, ATMs or by phone and set up alerts that can be sent both online and to a mobile device. Those who monitor their accounts frequently are most likely to uncover suspicious or unauthorized activity. Too many cases of fraud are detected via slower methods, such as when consumers review credit histories, paper statements or are contacted by a debt collector.

2. Keep Personal Data Private - Do not provide sensitive financial information over the Internet or phone, including Social Security/National Insurance/Passport Numbers, passwords, personal identification numbers (PINs) or account numbers, unless you initiated the interaction to a verified and trusted location, such as the number or web address on the back of a credit card, debit card or statement.

3. Online is Safer than Offline When Consumers Use Available Security Control - Consumers should install and regularly update anti-virus and anti-spyware software, and keep operating systems and browsers updated. Once online access is secure, consumers should move financial transactions online to eliminate many of the most common avenues fraudsters use to obtain personal information and gain more control compared to traditional channels. Moving online includes turning off paper invoices, statements and checks, and replacing them with electronic versions. Avoid mailing checks to pay bills or deposit funds in your banking account. Instead, pay bills online and use remote deposit check imaging services.

4. Be Aware of Those around You - Be mindful of your environment and others who may be in proximity of overhearing sensitive financial or personal information or watching you text. This includes purchases over the phone or use of your Social Security/National Insurance/Passport number for identification.

5. Ensure Credit and Debit Cards are Protected - Obtain credit and debit cards from financial institutions that provide zero liability if a card is ever lost, stolen or used without authorization. Nearly all financial institutions automatically protect you against any unauthorized transactions made at merchants, over the phone, on the Internet or at the ATM.

6. Learn about Identity Protection Services - There are additional services for those consumers who want extra protection and peace of mind. These include credit monitoring, fraud alerts, credit freezes and database scanning, some of which can be obtained for a fee and others at no cost. At a minimum, consumers should review their credit rating no less than once per year.