Prevalence

How much fraud is out there?

Surveys that attempt to chronicle the rate of fraud are complicated by studies demonstrating that the majority of known fraud victims refuse to acknowledge their own victimhood when asked.

2005 FTC survey

Prevalence studies typically are done by surveying a random sample of the population and asking if they have been taken by a specific scam or by fraud in general. While they are far from perfect given self-reporting error, here is a snapshot of recent studies and the percent of respondents acknowledging they had been taken in the previous year by one or more scams:

Consumer Authority, Netherlands (2008) – 16.0%

Federal Trade Commission (2007) 13.5%

UN International Crime Victim Survey – US (2005) – 12.5%

UN International Crime Victim Survey – Major Industrialized Countries – (2005) 11.0%

AARP Consumer Fraud Study in Washington State (2003) – 12.0%

Titus (1995) US Department of Justice – 15.0%

FINRA (2007) National Risk Behavior Study (investment fraud only – lifetime) – 7.8%

Office of Fair Trading – UK (2006) – 6.5%

There are methodological differences in how questions are asked in these surveys that may in part explain the variation in rates. Those interested in this data should carefully review the methodology sections of each study. There is also compelling evidence that many survey participants under-report their experience as victims, with some error rates as high as 78%. Thus the prevalence rates reported here are probably on the low end (AARP, 2003; FINRA/WISE, 2006).

Victims by Type of Fraud

Many different organizations collect data about the various frauds going on in the marketplace. Most of these data are the result of tabulating consumer complaints filed with government agencies. While many victims under-report fraud in surveys, they also frequently fail to report the crime to authorities. Surveys indicate the percentage of victims reporting fraud ranges between 20% and 50%. Thus, government agency complaint data is incomplete but nevertheless provides a snapshot of fraud activity in the marketplace.

C. How much money is lost to fraud each year?

The answer to this question is still unknown. The commonly quoted “$40 billion lost to fraud” phrase is out of date. This $40 billion figure came from a study done by Richard Titus in the early 1990s (Titus, 1995). Several organizations have more recently attempted to estimate the total dollar losses:

• The newly-established Fraud Enforcement Task Force uncovered more than $8billion in securities, commodities, and investment fraud losses alone in 2010. (For complete 2010 report, click here.)

FBI cases pending

• The Federal Trade Commission estimated that there were 48.7 million individual fraud transactions in 2005 and the average loss was $60 per transaction. This would put the total dollar loss to fraud at approximately $2.92 billion per year in the United States (FTC, 2007).

• The 2006 UK fraud study estimated total dollar losses in the UK in 2005 to be 3.5 billion pounds (UK, 2006).

• The Consumer Authority in the Netherlands estimated fraud losses in 2008 totaling 579 million Euros (Consumer Authority-Netherlands, 2009).

Each of these studies had quite different methods for estimating total losses to fraud. All of them relied on some variation of individuals self-reporting their experiences with fraud.

There is no doubt that losses are significant.  The Bernie Madoff case alone resulted in losses to investors of over $50 billion, most of whom never complained to a government agency, and new multi-million dollar ponzi schemes continue to emerge.