minimising fraud, maximising resources for social...
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MINIMISING FRAUD, MAXIMISING RESOURCES FOR SOCIAL HOUSING
Jim GeeDirector of Counter Fraud ServicesVisiting Professor and Chair of the Centre for Counter Fraud Studies, University of Portsmouth, UK
London Finance Group EventNational Housing Federation and BDO in Partnership
WHAT WILL BE COVERED• Background• Why is fraud important?• The nature of fraud• Two key questions
- How much does it cost?- How well protected are you?
• The importance of fraud resilience• What can you do?• Questions?
BACKGROUND : JIM GEE• 28 years a Counter Fraud Specialist • Head of Counter Fraud team at three local authorities• Advisor to UK Parliamentary Select Committee• Founding Vice-Chair of the Counter Fraud Professional
Accreditation Board• Chief Executive of the UK NHS Counter Fraud Service• Senior civil servant and lead advisor to the UK Attorney-
General, 3 Secretaries of State and 5 Ministers• Director of Counter Fraud Services at BDO• Visiting Professor and Chair of the Centre for Counter Fraud
Studies at University of Portsmouth• Recently advised the Chinese Government on fraud and has
worked with organisations in more than 35 countries, most recently Zambia, Indonesia, Cameroon and South Africa
Let’s be clear …
NOT
• Corruption or bribery• Money laundering• Error or incompetence
WHAT IS FRAUD?
NOT just a criminal matter
• Civil law • Criminal law• Regulatory sanctions• Disciplinary sanctions
THE ‘BOTTOM FIVE’ EXAMPLES
5. FATHER ANTOINE VIDEAUA French priest who drove a Ferrari, lived with a mistress and had 28 bank accounts was jailed for fraud. Father Antoine Videau amassed a fortune equivalent to £2 million over 20 years by stealing donations to the church and rent from church property. He even siphoned off £500,000 from the estate of an archbishop after he was made executor of the senior churchman's will. He fleeced nuns by renting out their convent for private events and spent church funds on a "pilgrimage" to Las Vegas. Father Videau, 64, received a three-year prison sentence in Corsica for crimes that led to him being known as the ‘Playboy Padre’.
THE ‘BOTTOM FIVE’ EXAMPLES
4. THE FAMILY OF THE ‘ONE OF THE OLDEST MEN IN THE WORLD’Japan has long boasted of having many of the oldest people in the world, but that was before the police found a body of a man, thought to be one of Japan’s oldest at 111 years, mummified in his bed, dead for more than three decades. His daughter, 81, hid his death to continue collecting his monthly pension payments. A woman, who would have been the oldest woman in the world at 125, is also missing, and probably has been for a long time. When Tokyo city officials tried to visit her at her registered address, they discovered that the site had been turned into a city park – in 1981. To date the authorities have been unable to find more than 281 Japanese who had been listed in the records as 100 years old or older.
THE ‘BOTTOM FIVE’ EXAMPLES
3. LI YI, A TAOIST MONKOne of China’s most famous monks, who counts some of the country’s most senior figures among his followers, went on the run after being exposed as a fraud. Chinese government officials said that “Supreme master” Li Yi, a 41-year old Taoist monk, had faked a long list of improbable super powers. Mr Li had claimed that he could sit cross-legged under water for more than two hours because of his Taoist abilities and that he could withstand 220 volts of electricity circulating throughout his body. Mr Li used his fame to sell health and philosophy programmes to his 30,000 followers at the Shaolong Taoist Temple near Chongqing which cost up to 9,000 yuan (£900) a week.
THE ‘BOTTOM FIVE’ EXAMPLES
2. OWEN CRUMLISH, LEO LARKIN AND TWO OTHERSA pensioner starved himself to death after a gang of cowboy builders fleeced him of £7,000 – to replace a single roof tile. Cyril Jenkins, 88, was quoted £250 by four men who pulled up outside his house in a van. But after he agreed to the price the conmen drove him to the bank where he withdrew £3,000 and later £4,000 of his life savings. The former businessman was so shocked by the swindle that he stopped eating and lost five and a half stone. He died in hospital weighing just seven stone, too weak to fight off a heart problem. Two members of the gang, Owen Crumlish, 29 and Leo Larkin, 35, have been jailed for nine months at Bristol Crown Court.
THE ‘BOTTOM FIVE’ EXAMPLES
1. PIER PAOLO BREGA MASSONE AND SEVEN OTHER ITALIAN DOCTORSEight Italian doctors performed unnecessary surgery in an attempt to defraud the Italian health service. The operations included unwarranted mastectomies and the unnecessary removal of a lung from a patient with pneumonia. Pier Paolo Brega Massone, the head surgeon at Milan’s Santa Rita clinic, was sentenced to 15 months. He oversaw 80 such operations. An anonymous tip-off lead to wiretaps which caught the doctors talking about earning more from more invasive surgery.Prosecutors stated that at least five patients died after operations that were too risky for their condition. The frauds cost the health service £2.2 million.
• It is not a victimless crime
• It undermines the financial health and stability of companies and diverts resources from the provision of quality social housing
• It has direct and indirect negative impacts
• Its impact is Individual and Organisational
Economic and Financial
WHY IS FRAUD IMPORTANT?
THE ECONOMIC IMPACT OF FRAUD• A recession “fuelled by an epidemic of mortgage fraud” ...
Phil Angelides, Chair of the U.S. Congress Financial Crisis Inquiry Commission
And how the recession impacted on fraud ...• an increase of 55% in online banking fraud• insurance fraud rose by 24% to £1.9 billion• identity fraud rose 74% in the first half of 2009 • a 72% increase in the number of directors disqualified for
financial crime• an increase of 72% in the number of reported frauds• The Bank of England has revised its estimate of the
percentage of counterfeit £1 coins from 2 to 2.5%
THE IMPACT OF ECONOMICS ON FRAUDWhat you would expect in a recession:
1980 - 1981GDP shrank by a total of 6.1%Reported fraud and forgery offences increased by 9.09%
1990 - 1991GDP shrank by a total of 2.5%Reported fraud and forgery offences increased by 30.52%
2008 – 2009GDP has shrunk by over 7%Fraud and forgery up by more than 40%
A NEW APPROACHA new approach to fraud has developed over the last decade: • Focussing on the financial cost of fraud not just the individual
fraudsters• Doing much more to prevent fraud taking place• Accurate measurement of the nature and scale of the problem• Reducing fraud losses and delivering a multiple return on the cost of
the work• Treating fraud like any other business cost
WHAT THE DATA SHOWS• 15 years of data• 290 loss analysis exercises in 46
organisations in 9 countries• 40 types of expenditure• Value of expenditure where
measurement took place = over £7.2 trillion
• Excluding any figures based on detected or reported fraud or ‘guesstimates’ or surveys of opinion
• Statistically valid estimates : 90 – 95% statistical confidence
• Accurate : between plus or minus 1 –2.5%
• Externally validated
‘The Financial Cost of Fraud’ Report 2013’
WHAT THE DATA SHOWS
0.05%5.47%
21.54%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
LOWEST PERCENTAGE LOSS AVERAGE PERCENTAGE LOST HIGHEST PERCENTAGE LOSS
WHAT THE DATA SHOWS
33.13%
42.94%
23.93%
PERCENTAGE LOSS < 3%
PERCENTAGE LOSS 3‐8%
PERCENTAGE LOSS > 8%
WHAT THE DATA SHOWS
4.57%
5.47%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
AVERAGE PERCENTAGE LOST ‐ 1997‐2007 AVERAGE PERCENTAGE LOST ‐ 1997‐2011
19.54%
LOSSES TO FRAUDGlobally, across all sectors £2.91 trillion is lost each year
Almost twice UK GDP for 2011.
Globally, just in the healthcare sector £313 billion is lost
Enough to provide clean, safe water around the globe, bring malaria under control in Africa, provide the Diptheria, Tetanus and Pertussis vaccine to all 23.5 million children under one years old who are currently not immunized (2.5 million die each year from diseases preventable by vaccines), quadruple the budget of the World Health Organisation and UNICEF (the United Nations Children’s Fund), and build more than 2,300 new hospitals at developed world prices.
HOW QUICKLY COULD THESE LOSSES BE REDUCED?• Examples in “The Financial Cost of
Fraud Report 2013”• Reductions of up to 40% within 12
months• i.e. if the average cost is just under
5.5% of expenditure then just under 2.2% of that expenditure is no longer being lost
• With up to a 12 : 1 return on the costs
• The benefits : more financially healthy and stable companies; in the public sector easier, less painful budget reductions
• How can these losses be reduced?
‘The Financial Cost of Fraud’ Report 2013’
ANTI FRAUD CULTURE
DETERRENCEPREVENTION
DETECTIONINVESTIGATION
SANCTIONSREDRESS
PROBLEM
STRATEGY
STRUCTURE
ACTION
DELIVERY
REACTIVE
PRE-EMPTIVE
THE COMPREHENSIVEAPPROACH
An organisation which is resilient to fraud has all of this in place
FRAUD RESILIENCE IS CENTRAL TO FRAUD COSTS• Fraud resilience is a Government-accepted measure of the
extent of protection against fraud. It encompasses 29 different factors
• Rooted in the CIPFA ‘Managing the Risk of Fraud’ standards, developed by BDO and the Centre for Counter Fraud Studies at University of Portsmouth since 2007
• 29 different factors, a maximum rating of 50 points – has been applied to organisations representing more than 1/5th
of UK GDP - the subject of research in many sectors including social housing
• With University of Portsmouth we have built the largest fraud resilience database in the world with data concerning 29 aspects concerning almost 700 organisations
• What impacts most on the cost of fraud is fraud resilience not the speed of response after losses have been incurred
HOW WELL PROTECTED IS MY ORGANISATION?2011 research, to be renewed in 2014
Overall findings:• Across the sector a mean rating of 32.3 / 50• Public sector: 34.4• Private sector: 30.6• Charitable sector: 24.2
HOW WELL PROTECTED IS MY ORGANISATION?Social housing sector best:• Prompt reporting of fraud (100%)• Identifying policy and systems weaknesses (98%)• Powers for investigators (95%)• Guidance for investigations (94%)• Design fraud out of processes (92%)
Social housing sector worst:• Basing counter fraud investment on information about the
cost (16%)• Reviewing the effectiveness of the work (23%)• Professional training for counter fraud staff (29%)• Reviewing the development of the anti-fraud culture (29%)• Less than 40% use data analytics
A NEW GUIDE TO SOCIAL HOUSING FRAUD• In 2013 the National Housing Federation
commissioned PKF to develop a new Guide to Social Housing Fraud to help social housing organisations improve their resilience to fraud
• Practical advice on tackling fraud across the whole area:– How to assess its nature and cost– How to design an appropriate strategy– Creating and resourcing an effective
structure– Taking a range of pre-emptive and reactive
actions– Performance managing the work and
delivering real benefits• We have also made available a free Self-
Assessment Fraud Resilience tool (SAFR)
SELF-ASSESSMENT TOOL
working together
The Self-Assessment Fraud Resilience tool (SAFR)
www.safr.bdo.co.uk/fraud
• Easy to use - provides clear information - data held securely and confidentially
• Already in use in insurance, social housing, central government and local government sectors
A helicopter view of your organisationwww.bdo.co.uk/fraud
FRAUD LOSSES AND FRAUD RESILIENCE
AVERAGE LOSSAVERAGE RESILIENCE
We control the largest database in the world concerning the fraud
resilience of more than 700 organisations.
We control the largest database in the world concerning 290 fraud
loss measurement exercises involving 40 types of expenditure with a total value of
over £7 trillion.
• Resilience calibrated v. losses• The most resilient losing 1.5% of expenditure or less• The least resilient losing 10% of expenditure or more
CONCLUSIONS• Fraud can be measured as a business cost like any other• More and more organisations recognise the value of doing
this• The data shows that fraud losses are significant – AND
RISING• They can be reduced by up to 40% within 12 months• IF social housing organisations
- adopt a corporate approach- treat fraud as a cost like any other - improve their fraud resilienceThen significant financial benefits can be delivered.
• By minimising the cost of fraud, we can maximise the resources available for quality social housing.
