2.13 The contract requires NS&I to share the risk of customer and staff fraud with SBS. Originally, NS&I's annual exposure to fraud was £250,000 with SBS bearing the risk of fraud above this amount. The Committee of Public Accounts' report10 on the original deal said it was essential that NS&I continued to ensure that fraud was minimised. NS&I subsequently negotiated an amendment to the original contract, reducing its annual liability from £250,000 to £90,750 over the life of the contract. In the two years before the partnership, NS&I experienced customer fraud averaging £388,000 a year, In the first three years of the partnership, the average fell slightly to £375,000 a year. Around 85 per cent of fraud relates to the Ordinary Account resulting in NS&I reviewing the account products with the aim of decreasing the level of fraudulent activity with particular focus on the payment on demand facility available at Post Offices. The remainder of fraud mostly stems from repayment warrants. Changes to the way in which fraud is accounted for may have artificially inflated the fraud figures since contract inception.
2.14 In 2002, after conducting a Fraud Management Review to identify and assess the risks of internal and external fraud for each product and each delivery channel, SBS introduced enhanced fraud mitigation procedures designed to effectively counter fraud.
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10 HC 566 1999/00.