The Real Cost of External Fraud: A Report by The University of Portsmouth
The Real Cost of External Fraud by Professor Mark Button, Dr David Shepherd and Dr Branislav Hock, Centre for Counter Fraud Studies. The University of Portsmouth.
The cost of and extent of fraud is frequently reported in the media with a variety of organisations producing estimates
of fraud based upon methodologies of varying quality. There are two factors that generally unite these estimates.
The first is that they usually show fraud is a major problem and secondly they focus upon only the actual loss from
the fraud. Estimates do not generally take into account the collateral damage fraud does to an organisation and
the costs that are incurred in dealing with the consequences.
There have been very few studies that have sought to estimate the wider costs of dealing with fraud and its
consequences. Two of these studies the authors were involved with. The first was a project that sought to investigate
the real costs of internal fraud and the second was a study that explored the true costs of recruitment fraud (Button
et al, 2013; and Gee et al, 2019). These two studies identified a variety of costs that organisations incur in dealing
with fraud, such as the costs of investigation, staff suspension costs, internal disciplinary costs, justice costs, staff
replacement costs, miscellaneous costs and intangible costs. These studies showed significant costs on top of the
actual fraud loss.
The gap in the research to date, has been estimates of the real costs of external fraud. There are clear, practical
differences between internal and external fraud. Firstly, victim organisations are usually able to identify internal
fraudsters whereas external scammers are often unknown persons, e.g. account redirection fraudsters. Secondly,
evidence against internal fraudsters is often more accessible. Thirdly, if the organisation is satisfied with dismissal or
other disciplinary sanctions, the quality of evidence required is lower than that necessary for obtaining legal outcomes
against external fraudsters.
This report addresses this gap by exploring the full costs of external fraud and compares them to the costs of
internal fraud. This research was commissioned by Synectics Solutions and is the first study the authors are aware
of to identify the full cost of external fraud. It is based upon 39 cases of external fraud from a diversity of organisations.
The report begins by identifying the type of costs that are likely to be incurred in dealing with external fraud. It then
moves on to explore the findings starting first with the demographic data of the sample before moving on to explore
some of the costs identified from the research. Before we embark upon this, however, it is important to define external
A fraud primarily perpetrated by person(s) not directly employed by the organisation who is the victim. This could
include: contractors, suppliers, customers and opportunistic and organised criminals targeting the organisation.