Experts warn public sector fraud is much higher than estimated by UK’s National Fraud Authority (NFA) in its first annual fraud dictector.

NFA released its first fraud indicator last week, estimating fraud costing Britons £30bn ($A54.38bn) a year, 58%, or £17.6bn, of which was public sector fraud, but Jim Gee, a director of counter fraud services at chartered accountants MacIntyre Hudson and chair of the Centre for Counter Fraud Studies, put it much higher, at more than £27bn.

He told Public Finance, a UK publication for public sector managers, the MacIntyre Hudson estimate was based on an average 4.57% shortfall across all public sectors,

Gee, who is former chief executive of UK’s NHS Counter Fraud Service, noted the NFA’s estimates of the fraud costs were ‘puzzling’ and the losses for the health service, which the NFA estimated at £263m ‘extraordinary’.

He said the fraud calculated by the NFA in UK’s National Health Services (NHS) was only 0.27% of its budget compared with a global average of 5.59% for health care systems, according to recent findings by Macintyre Hudson.

‘I would be very interested in how that was calculated. If we assume the NHS is at the bottom of the global range of losses and as good as or better than any other country then it should still be losing £3.3bn,’ he said.

Gee said the average losses to frauds in the NHS until 2006 when he left was just exceeding 4%. The NHS has not published figures of fraud losses since the end of 2006.

The NFA said their new indicator was the most accurate and comprehensive yet, but admitted that it was ‘likely to underestimate the full financial impact of fraud’, particularly in the private sector because figures were not available for some industry areas or data only included reported losses.

‘As improvements are  made in the quality and availability of fraud loss estimates, it is likely that the overall fraud estimate will increase,’ Anne Jefferies, NFA head of measurements and analysis, said.

Andrew Davis, Experian head of public sector fraud, said fraud in local authorities was much more widespread than implied by the NFA indicator, which concentrated mainly on social housing tenancy and single person council tax discounts.

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Fraud costs Britons more than £30bn ($A53.48bn) a year, according to UK’s most comprehensive fraud estimate to date. The National Fraud Authority (NFA)’s first Annual Fraud Indicator, overshadows the previous accepted figure of £13bn in 2007 which only covered a small part of the country’s true fraud losses.

The figures show the public sector accounted for most of the fraud - 58% of the total figure - while the private sector generated 31% of the fraud losses and fraud against individuals, 12%.

Tax fraud was by far the highest single area of fraud loss, estimated at £15.2bn - more than half of the total loss. At the Department of Work and Pensions, fraud loss was estimated at £1.1bn or 0.8% of total benefit expenditure.

In the private sector, the financial services industry acounted for the highest loss to fraudsters, estimated at £3.8bn of which more than £2bn was lost in insurance fraud and £1bn, to mortgage fraud. Fraud in credit cards, online banking and cheques accounted for most of the remainder.

Information provided by UK’s Association of British Insurers (ABI) reveals that, although the industry ’saved’ £730m by detecting fraud in 2007, between 3% and 5%, or £29.2m, was still paid out before the fraud was dedected.

Add to that, undetected fraud, which ABI estimates at £1.9bn - up 24% on 2006, and losses of £348m from organised insurance fraud, namely staged motor vehicle accidents, for a total of £2.08bn.

The consumer goods and manufacturing industries are estimated to have lost £1.3bn and £1bn, respectively. The technology, media and telecommunications industry recorded losses of £948m. Credit and debit card fraud was estimated as low as 0.1% of total transactions.

However, the estimates relating to private and voluntary sector fraud are likely to underestimate the total private sector amount.

The true extent of the fraud in the UK private sector relies on the availability of data and willingness to share the data with NFA’s fraud measure.

NFA noted fraud losses in the mortgage sector in particular during 2008 were much higher than the £150m the industry initially supplied to the NFA survey.

Subsequently, industry experts engaged by NFA agreed mortgage fraud in 2008 amounted to losses of at least £1bn.

In 2009, two mortgage lenders alone, Bradford & Bingley and Chelsea Building Society, which together hold only 4.8% of the UK lending market, identified fraud in their own organisations of up to £81m.

Accounting firm KPMG’s 2009 Fraud Survey 2009 predicts unprecendented levels of government spending “may usher in record levels of fraud, waste, and abuse”.

The survey reveals nearly two-thirds of US executives in the public and private sectors expect some form of fraud or misconduct to rise in their organisation.

And for those companies operating outside the US, increased investigation and prosecution of anti-bribery and corruption laws meant “employees and agents may trigger risks like never before”.

The KMPG European Fraud Survey 2009 shows more than half of executives, or 55%, expect corporate fraud to increase over the next few years.