MoD's Counter-Fraud Efforts Fail to Recover Millions as Defence Spending Soars

The Ministry of Defence is failing to recover substantial sums lost to fraud and economic crime, potentially diverting critical resources from frontline military capabilities, according to a damning new National Audit Office (NAO) report. The watchdog's investigation reveals that despite recent improvements in counter-fraud performance, the department recovered less than half of what it spent tackling economic crime over the past four years, falling dramatically short of government efficiency benchmarks.

Between 2021–22 and 2024–25, the MoD recovered an average of just 48p for every £1 invested in counter-fraud work, well below the government target of £3 saved for each £1 spent. With the NAO estimating potential fraud exposure could reach up to £1.5 billion annually, the financial implications for Britain's defence capability are significant.

Background and Context

The report exposes systemic weaknesses in the MoD's approach to tackling economic crime, with the majority of risk concentrated in defence procurement activities—a sector characterised by high-value contracts and complex supply chains. However, fraud vulnerabilities extend across multiple areas including asset theft, personnel management, and information exploitation. The investigation reveals that the department's response remains fragmented, with longstanding structural issues undermining its effectiveness.

These fundamental problems include the absence of a department-wide objective to reduce losses, unclear accountability between counter-fraud and defence policing bodies, and inconsistent investigation and reporting processes. The situation is particularly concerning given the government's commitment to increase defence spending to 2.5% of GDP by 2027, which experts warn will likely increase exposure to fraud risks.

Key Figures and Entities

Sir Geoffrey Clifton-Brown MP, Chair of the Committee of Public Accounts, highlighted the particular challenges faced by the MoD due to the scale and complexity of defence operations. "With high expenditure, complex procurement and a workforce split between the Armed Forces and the Civil Service, the MoD faces particular challenges against the significant threat of economic crime and misconduct," he stated in response to the findings.

Gareth Davies, head of the National Audit Office, emphasised the potential for meaningful savings through improved fraud management. "The MoD could make significant savings if it better managed its losses from fraud and other forms of economic crime," Davies said. "Using this resource more effectively would require the MoD to reform the way it goes about tackling fraud and economic crime, but would enable it to achieve real savings that could be used to enhance the country's defence capability."

Legal and Financial Mechanisms

The NAO's analysis reveals critical failures in the MoD's financial controls and investigation processes. Although the department receives hundreds of fraud allegations annually, relatively few result in detection, disruption, or recovery of funds. The report identifies particular concerns around whistleblowing disclosures, with individual cases taking excessive time to resolve or, in some instances, never reaching satisfactory conclusions.

A significant loophole identified by auditors is the lack of full assurance regarding cases handled outside the MoD's core counter-fraud and policing teams. The department does not centrally record how police services investigate fraud against the ministry, creating a blind spot in understanding the full scope of economic crime and its financial impact. The absence of a comprehensive case management system further hampers efforts to track and resolve fraudulent activities efficiently.

International Implications and Policy Response

The findings have broader implications for UK defence procurement and international security cooperation. As global defence spending increases and supply chains become more internationalised, the risk of cross-border fraud and economic crime becomes more pronounced. The current fragmented approach could potentially compromise sensitive defence information and technology, creating vulnerabilities that extend beyond financial losses.

The NAO has outlined several critical steps needed to strengthen the department's approach, including establishing a clear objective to reduce overall fraud losses and appointing a senior official to act as the MoD's lead representative when it is the victim of economic crime. Other recommendations include creating a single accountable body to coordinate investigations across counter-fraud and police teams, improving case triage processes, consolidating case management systems, expanding the use of data analytics, and publishing more detailed estimates of total fraud losses.

Sources

This report draws on the National Audit Office report on Ministry of Defence fraud and economic crime, official statements from the Committee of Public Accounts, and parliamentary records. The investigation also incorporates analysis of government efficiency benchmarks and defence spending commitments announced between 2021 and 2024.