Guaranteed Painless Cost Savings
By Mike Neumann
I’m sitting here at the airport in Vienna, typing away on my netbook, attached to the internet on a 54Mbps connection, and guess what it cost me? Nothing – nada, nichts, not a single penny. And I’ve been online the whole time I’ve been here at the grand cost of (cue drum roll…) that’s right, you guessed it… zero Euro. Why is it then, that once I’m back in good old Blighty, I’ll have to use a subscription provider who’ll charge me £20 a month for an intermittent connection or a roaming provider who’ll give me a useless service at a price of around £5 an hour? Is it me, or has someone got their priorities wrong?
It seems to me that the same could be said about the fiscal savings we’re going to have to make over the next few years in the UK. I don’t know exactly how much you’re looking at saving over the next year, but I’ll have a stab at it being in excess of five percent. Hold on to that figure in your head whilst I go for a bit of a ramble…
What area do you work in? Benefits? Housing? Audit? Personnel? Here’s a question for you : How much is fraud costing you at the moment?
Even at the most understated ‘official’ figure, you’ve got to be looking at fraud losses somewhere between seven and ten percent. (And, yes, I know there have been recent reports claiming that the amount of undetected fraud has fallen, but just think about that for a moment… undetected fraud. Hmm – “The number of invisible, unobserved UFOs is down this year…”) The reality is very different : the FBI found mortgage fraud up by 36%, the City of London Police found an increase of 72% in incidents of financial fraud and the Home Office figures for 2009 showed a rise of 16% in fraud and forgery cases.
Now, for fraud to occur, you simply need the coincidence of three things : Justification, Motive and Opportunity.
Justification – For many people this is dealt with by just avoiding the question so that they’re, “…not really lying” or by the old, “…well everyone does it…” line. People might tell themselves that they’re “only borrowing” or that they’ll come clean “tomorrow”. As they start to feel less valued by their employers, people find it easier to justify stepping over the line.
Motive – Let’s look at the current economic climate. People are hard up. Do you think there will be more or less fraud at present? A report by Ernst and Young warns that the risk of ‘unethical behaviour’ goes up during a recession. It’s not hard to see why. There’s less (no) overtime, there have been no (or very small) pay rises, or maybe someone’s partner has lost their job. People’s expenses don’t go down, yet their income does. As the pressure to get money from somewhere increases, and the legal sources of money diminish, people feel pressured to get money somehow.
Opportunity – It’s unfortunate, but one of the first areas many organisations cut in these times are those that either prevent or detect fraud. Whether it’s removing internal checks and balances (in order to save time or because a retiring staff member is not replaced), relying on policies and procedures that exist only on paper (because there’s no one to check up on them) or reducing the efficiency of the investigation team (by redundancy, recruitment freezes or lack of training) the net effect is that people find that it becomes easier to commit fraud.
So I’d ask you, is this a time to reduce your spend on investigations or increase it? Of course you’ve got to find savings, so my question is this :
Do you want to cut jobs and services or would you rather reduce fraud?
Some Examples… .
Housing Fraud – a fraudster applies for a house as a homeless person. Their claim is false because they already own properties, and want to obtain this one in order to let it at a profit, and eventually buy it under the Right to Buy scheme at a discount.
Likely costs – loss of the use of a property, £11,000 to house someone in temporary accommodation instead, up to £38,000 in right to buy discount.
Internal contract fraud – a contract manager working for the authority is letting contracts without following the proper procedures, or taking bribes to award contracts.
Likely costs – Anything from £500 to £5,000,000 depending on the size of the contract.
ID fraud – an organisation employs a person to work in the processing department. They do not properly check the person’s ID, as no one in the employment process has any skill in checking identifications.
Likely costs – unlimited fine and up to two years in prison if the employer knew they were employing an illegal immigrant, £10,000 penalty if the employer didn’t follow the proper procedures when employing the person. ‘Named and Shamed’.
Employment fraud – an organisation employs someone who applies for the post of solicitor in the legal section. The applicant produces credentials and references to back up their application but these are never checked. After a year, it turns out that the solicitor is a law graduate who has not got a practising certificate, as they were barred for dishonesty during their probationary period.
Likely cost – cost of their salary up until the point that they were discovered (say £35K), review of all cases they presented for in court by a senior lawyer (£20K in time), cost of investigation and disciplinary (£10,000), cost of recruiting new solicitor (£5,000), plus rehearing of some cases, embarrassment in the press…
Internal fraud – two managers working in the works yard come up with a plan to defraud their employer. They order legitimate stock on a regular basis for the work they do. They start ordering personal items for themselves, as when they order stock, all that is required for payment is a reference number and not a description. The invoices are paid without question and this goes on for three years, until they’re caught.
Likely costs – loss of £500,000 plus cost of disciplinary and recruitment.
Employee fraud – an assessor, working in the benefits department, realises that they are able to create false claims for addresses at which their friends live. They pay housing benefit to these addresses, for people who do not exist. This goes on for two years.
Likely costs – loss in benefits (at least £12,000 per case), plus recruitment and disciplinary costs.
Theft – employees steal stationery to use at home and to give to their friends, or even sell. Anyone who needs stationery only has to visit the store cupboard to get what they want. There is no stock control in place and no security.
Likely cost – this can reach as much as 20% of annual stationery costs!
Budget fraud – a manager has control of a budget for the department and decides that they will siphon off funds from this into their personal account by way of setting up a fictitious company to purchase from. The purchases are for consultancy, that the manager writes the reports for himself, and are always below the procurement limit.
Likely costs – 1% of £1,000,000 budget = £10,000, cost of investigation, disciplinary and recruitment.
Article – Mike Neumann, additional material and research – Zac O’Neil
ITS Training – 08454 300 262. Mike@its-training-uk.com www.its-training-uk.com