2011 – Insider fraud increases

Analysis of frauds recorded on the CIFAS Staff Fraud Database reveals an alarming increase in the level of fraud being committed by employees during 2011 (when compared with 2010), most notably:

• A 14.5% overall increase in the number of insider frauds recorded in 2011 when compared with 2010.
• A 41% spike in the number of dishonest actions by staff to gain a benefit by theft or deception (e.g. theft of cash from customer accounts).
• A decrease in the number of unauthorised disclosure of data frauds, which demonstrates the increasing preventative measures taken by organisations against this threat.
• Levels of fraudulent attempts to gain employment remain relatively stable.

(Numerical tables are included in the Notes for Editors below).

Fraud increases – organisations cannot ignore the threats

While organisations readily accept the danger and damage that customer fraud can inflict, many remain reluctant to recognise the risk of fraud being committed inside the organisation by its staff. With an increase of 14.5% being recorded during 2011 organisations cannot afford to ignore this threat.

CIFAS Communications Manager, Richard Hurley, comments: “The damage done by fraudsters who sit within an organisation is not just upon a balance sheet but also on staff and customer morale, reputation and can even result in regulatory and legal sanctions. While the 14.5% increase witnessed in 2011 demonstrates that some organisations are increasingly aware of, and looking out for, fraud committed by insiders, the surge must also underline how prevalent the danger actually is. To assume that staff committing fraud will not affect your organisation is pure folly.”

Deception and manipulation increasingly rife

The main reason for the overall increase is a massive surge in the level of dishonest actions by staff to obtain a benefit (up 41% from the level recorded in 2010). The most common reasons for recording such frauds are the theft of cash from either a customer account, or directly from the organisation.

Richard Hurley notes: “Over 30% of all frauds recorded for dishonest actions are directly linked to the theft of cash from customers – with anecdotal evidence from CIFAS Members showing that many of these fraudsters steal from elderly and more vulnerable account holders. While economic hardship as a motivation might generate a level of understanding, the heartless nature of such frauds only underlines the fact that the perpetrators’ actions are as bad as muggers in the street. Responsible employers, therefore, counter this by sharing data on confirmed cases in order to prevent these fraudsters from simply moving on to another organisation in order to repeat their actions.”

Increasing awareness brings some reward

2010 witnessed a dramatic rise in the number of instances of staff unlawfully obtaining and disclosing personal data, a trend that worryingly pointed towards organised criminality and highlighted the vulnerability of data within organisations. The 25% decrease noted in 2011, however, shows an increasing awareness of this danger, and demonstrates the steps taken within organisations to counter the threat. The fact that organisations have remained alive to the vulnerabilities they face is therefore encouraging news and hopefully will herald the advent of much stronger controls upon staff with direct access to customer accounts.

Fraudulent attempts to gain employment level stable

Unsurprisingly, the total number of cases where applicants have attempted to gain employment fraudulently (e.g. by making serious false declarations as part of an application, such as providing a false employment history, credit history or not declaring outstanding criminal records) remain relatively unchanged from 2010; with only four fewer cases recorded in 2011.

During a period of economic and employment uncertainty, organisations must tighten their existing recruitment processes; to ensure that applications are vetted and checked thoroughly to ensure that the person being employed is precisely the person who completed the application and that they have the qualifications and experience that they claim. The cost of employing someone who has made fraudulent declarations about their employment skills and history goes far beyond a financial one: it also has serious implications for reputation and for the morale of existing staff.

Comment from CIFAS Staff Fraud Adviser

CIFAS Staff Fraud Adviser, Arjun Medhi, concludes: “The idea that our direct colleagues might be committing fraud is an uncomfortable one, so the fact that staff fraud levels have increased is therefore one that must concern all responsible employers. Acknowledging and combating the potential weaknesses that exist inside an organisation are vitally important as to do otherwise is tantamount to sticking your head in the sand and saying that you cannot see the danger. Responsible actions, careful processes that weed out rogue employees – and secure data sharing about confirmed insider frauds – are all steps that can be taken to combat the minority of rogue employees without punishing its most valuable asset: its trusted and reliable staff. Not to do so increases the risk that staff fraudsters will cause unquantifiable damage to the reputation of their organisations.”

Notes to Editors:

1. CIFAS is the UK's Fraud Prevention Service with over 260 Member organisations spread across banking, credit cards, asset finance, retail credit, mail order, insurance, investment management, telecommunications, factoring and share dealing.  Members share information on identified frauds in the fight to prevent further fraud.  CIFAS is unique and was the first data sharing scheme of its type in the world.  Other schemes modelled on CIFAS have been set up in Southern Africa and Germany.

2. CIFAS launched its Staff Fraud Database in 2006, which currently has 80 Members covering over 210 organisations sharing information on frauds that have been perpetrated against CIFAS Staff Fraud Members. Members are drawn from the UK financial services industry, but also from telecommunications, insurance, recruitment and other business sectors. The launch of the Database was carried out in consultation with: the Information Commissioner’s Office, the Financial Services Authority; the Confederation of British Industry; the Trades Union Congress and Chartered Institute for Personnel and Development.

3. The following tables show a summary of the statistics and the number of fraud cases recorded by CIFAS Staff Fraud Members during 2011, broken down by the type of fraud identified.  Definitions are given below the table.

CIFAS Members must investigate and reach a ‘burden of proof’ (i.e. there must be evidence of an identifiable criminal act) before filing to the Staff Fraud Database. More than one reason for filing a fraud can be identified, meaning that the total number of reasons can differ from the number of staff fraud cases identified. Reasons for filing to the database are defined as:

Account Fraud – Unauthorised activity on a customer account by a member of staff knowingly and with intent to obtain or attempt to obtain a benefit for himself or others.

Dishonest action by staff to obtain a benefit by theft or deception – Where a person knowingly, and with intent, obtains or attempts to obtain a benefit for himself and/or others through a dishonest action, and where such conduct would constitute an offence.

Employment application fraud (Successful) – A successful application for employment or to provide services with serious material falsehoods in the information provided. This includes the presentation by the applicant of false or forged documents for the purpose of obtaining a benefit.

Employment application fraud (Unsuccessful) – An unsuccessful application for employment or to provide services with serious material falsehoods in the information provided. This includes the presentation by the applicant of false or forged documents for the purpose of obtaining a benefit.

Unlawful obtaining or disclosure of commercial data – The use of commercial/business/company data where the data is obtained, disclosed or procured without the consent of the data owner. This includes the use of commercial data for unauthorised purposes that could place any Member at a financial or operational risk.

Unlawful obtaining or disclosure of personal data – The use of personal data where the data are obtained, disclosed or procured without the consent of the data controller. This includes the use of personal data for unauthorised purposes that could place any Member at a financial or operational risk. 

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