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Panel On Fraud

by msecadm4921

While pointing to progress – not least the Fraud Act 2006 – complacency endures, according to the annual report.

“Many of our proposals require action by government,” says FAP chairman Ros Wright. “Although all of us need to be vigilant, protecting the citizen is an ultimate responsibility of the state and can never be privatised or contracted out.” Perhaps the most pressing need is to better protect private citizens against identity fraud. Despite several worthwhile initiatives more needs to be done to educate the public on risks and the precautions everyone can take to avoid them. High-profile advertising on TV, radio and the press would have a major impact. The Data Protection Act 1988 should also be amended to impose an obligation on organisations to inform clients and customers of information security breaches.

Experience suggests that many businesses will continue to downplay the need for effective fraud prevention so long as there is no obligation to report losses. The Panel is aware of concerns that this would add to the regulatory burden yet sees merit in further and wider debate on the subject. One interesting suggestion is that listed companies should be obliged to report estimated fraud losses over a significant level to their shareholders.

The panel wants mainstream fraud as a policing issue.

It is vital to save existing fraud squads from contraction (even extinction in some parts of the country). Making fraud a Key Performance Indicator within the National Community Safety and Policing Plan would send a powerful signal to chief constables that financial crime must not be marginalised. Establishment of local Police and Community Fraud Liaison Groups would also help establish financial crime as a mainstream law enforcement issue. Members drawn from chambers of commerce, professional bodies and local authorities would feed intelligence and concerns to local forces, so helping senior officers take more informed decisions. The network of regional fraud forums plays a useful role but cannot provide this kind of close liaison at the level of police basic command units.

The Panel supports the Government’s proposal for a ‘Financial Court’ to handle most aspects of a fraud case, including the criminal prosecution, asset recovery, regulatory action and civil proceedings.

And what next? “I would hope there might be a time when the Fraud Advisory Panel has fulfilled its mission,” says Ros Wright “but that doesn ’t look likely in the forseesable future.The impact of fraud on the national economy is huge and has still barely registered on the public consciousness. ACPO’s figure of £20 billion annual loses (some £330
for every man, women and child in the country) is probably an under-estimate and yet much of it is preventable with minimal effort.”

The Panel will continue to focus on activities to improve awareness of fraud; to highlight new and emerging problems; and to examine ways to address them effectively. “There is a constant need for warnings, analysis and advice on all aspects of financial crime. Three recent issues stand out. An alarming rise in property-related fraud, including ‘skimming ’where a fraudster and a corrupt professional collude to seek a property secured loan backed by an inflated valuation. Advance fees frauds of every kind are on the increase and prey particularly on the vulnerable. Investment frauds,particularly of the ‘boiler-room ’cold-calling variety, remain a perennial threat from overseas organised gangs.”

Why, given the huge losses caused by fraud does the Government still treat financial support for police investigations as a relatively low priority? Why does much of business still not treat it as a major risk? Is it because fraud is still considered a victimless crime? Or a crime that only affects well-off people whose folly merits little sympathy? Although there is an increasing awareness of the devastating human, social and economic impact that fraud can have at local, national and international level, more must be done.

“There’s still little sense of the damage done to society as whole. That makes it all the harder to motivate consistent action by government. It doesn ’t help that so much fraud goes unreported which in turn eases pressure on corporates to pay for prevention. In many cases costs are simply passed on to the consumer,” says Panel Trustee Felicity Banks, of the Institute of Chartered Accountants in England and Wales.

“Step changes in corporate fraud management depends on scandals shocking firms into action. That’s often true of government as well.In the absence of an Enron-type crisis it ’s never going to be easy to get dramatic changes – you just have to keep chipping away.”

Panel Trustee Ken Farrow (a former Head of the City of London Police Economic Crime Department) highlights the problem of ‘control delusion’ in large parts of business. “Many executives like to think of themselves as ‘big picture people ’and don ’t know why fraud happens or how controls are made effective.They take a passive approach and see fraud prevention as just another overhead. And we’re often slow to respond in this country. For instance, New Zealand and France had Chip and PIN many years before we did.”

Martin Robinson agrees. “Risk management falls down when it ’s too reliant on box ticking rather than evaluating individual functions and root causes. Many organisations still do not have fraud policies and fewer still embed them at every level.”

The panel has exhorted firms to make sure that controls are not merely in place; they must be implemented and checked constantly to ensure they are effective. It is not enough,for example, to have whistle-blowing policies in place if the person with designated responsibility does not know what to do when a report of fraud is received.

So far as criminals are concerned personal data is now as good a haul as cash because it can be used for identity fraud. The result is a radical new threat to every individual and family.In 2006 the Home Office estimated that ID fraud cost the economy over £1.7 billion a year. The Internet has destroyed many of the traditional barriers to fraud, enabling criminals,many of them from organised gangs,to capture vital personal information. The recent Information Security Breaches Survey for DBERR found that the proportion of large business reporting unauthorised outsiders penetrating their networks stood at 13pc in 2007.

Unfortunately parts of Britain’s public and private sectors have not yet appreciated the enormity of the threat.The DBERR survey found that 78pc of firms that had computers stolen had not encrypted their hard drives. And 67 per cent of companies did nothing to prevent confidential data leaving their offices on USB sticks.

In April 2008 the Information Commissioner ’s Office (ICO) reported “an alarming number of security breaches ” by almost 100 public, private and voluntary organisations. “Of the security breaches that the ICO has been made aware of by private sector organisations, 50 per cent were reported by financial institutions. Of those reported almost a third occurred in central government and associated agencies and a fifth in NHS organisations.”

Incredibly, the panel adds, the law places no obligation on data holders to inform people that their identities may have been compromised. The Panel called in May 2006 for an amendment to the Data Protection Act which would put pressure on data holders to act more responsibly.

“Would-be fraudsters make a simple calculation,”says Ken Farrow. “A generally low risk of detection plus negligible risk of imprisonment makes fraud seem a decent bet.”

This is borne out by the Fraud Review. It admitted that current sentences “are not viewed as a deterrent ”. The maximum penalty is 1o years in prison but even the very largest fraud sentences in 2005 averaged only three years (not including remission which generally cuts half off time served). The Review went on to say that there is “a lack of willingness by police forces to accept reports of fraud outright ” due to “a lack of capacity …even when reports are taken, little is done with them ”.Its Interim report noted that “the chance of a low or medium value fraud against the private sector being investigated is very small”.

The expanded Lead Force will help address this problem. But local fraud squads continue to wither as financial crime remains outside current policing priorities. Farrow points out that “it wouldn’t be expensive to upgrade them; the Review made clear that it would cost only around £15 million to double the number of police officers allocated to financial crime”.

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