Tuesday, 25 March 2014

Do you need to know how much is lost to fraud?

Last night's Panorama programme on 'The Great NHS Robbery' and the related press stories appear to have created quite a stir. The NHS is now criticised for not knowing how much it loses due to fraud even though Full Fact question the very basis of the figures quoted. Naturally, my own interest lay in the passing reference to procurement fraud by Jim Gee, one of the main contributors, and Director of Counter fraud services, BDO LLP and Visiting Professor and Chair of the Centre for Counter fraud studies at University of Portsmouth.

If you don't get a chance to see the programme, the basis appears to be The Financial Cost of Healthcare Fraud 2014 report, said to be the outcome of 15 years research!

Let's first acknowledge that the Panorama programme, the Report and the surrounding media reports have usefully raised awareness that fraud is a big issue and a waste of scarce resources. Let's also acknowledge that fraud is on the increase and the reduction in forensic public sector auditing is unlikely  to hasten a demise of fraudulent activities.

But it is a nonsense for Mr Gee to say the NHS "needed to carry out a proper assessment of how much it was losing" or, as paragraph 1.2 of the report, states:
The measurement of losses to fraud (and error) is an essential first step to successful action. Once the extent of fraud losses is known then they can be treated like any other business cost – something to be reduced and minimised in the best interest of the financial health and stability of the organisation concerned. It becomes possible to go beyond reacting to unforeseen individual instances of fraud and to include plans to pre-empt and minimise fraud losses in business plans.
"Essential"? Why? What purpose would that serve? It is not at all essential to have measurement of fraud before you can treat the causes of fraud and put in place preventative measures. At best, knowing the cost of fraud, helps the business justification for taking preventative steps.

You need to understand the environment in which fraud takes place and likely opportunity. You do not need to know the historical costs, particularly in an industry moving as fast as health. Think for example, if we calculated the costs of the First World War, does that really provide a good indicator of the costs of the Second World War? But understanding what led to the First World War could potentially avoid the same mistakes being repeated.

It is also a nonsenses to imply that it is possible to calculate, with any degree of accuracy, the cost of fraud - successful fraud is undetected. The full extent of fraud is, and always will have to be, one of 'the great unknowns'.

Even if the NHS knew the full cost of fraud they are likely to refer only to the financial costs. What about the fraud costs in terms of:
  • Higher prices;
  • Inferior quality;
  • Legal costs;
  • Insurance costs;
  • Increased exposure to risk;
  • Loss of reputation; and even
  • Compromised patient safety.
How would the advocates of calculating how much the NHS is losing to fraud, or any other organisation for that matter, reliably quantity those costs? 

So my suggestion to the NHS and anyone with an interest in procurement fraud, is, forget about calculating the costs of historic fraud, and focus your attention to current and future vulnerability to fraud.

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