- Over £1bn of fraud comes to court – highest since 1995
- Organised gangs inflict huge losses on Government
- ID theft and accounting frauds are widespread
Britain’s fraud problem shows no sign of abating, with over £1bn of fraud coming to court in 2007 according to KPMG Forensic’s Fraud Barometer - the highest value since 1995 and the second highest in the 20 year history of the Barometer. The number of cases coming to court fell to 197 from 277 in 2006, but this remains a higher number than seen in any year prior to 2005.
With fears that the credit crunch will lead to a period of protracted economic slowdown, there is the potential that personal and corporate pressures may fuel fraudulent behaviour making the situation worse in 2008 rather than better, KPMG Forensic warns.
Hitesh Patel, partner at KPMG Forensic, said: “Levels of fraud continue to remain disturbingly high. Organised gangs have been more active than ever, with a proliferation in VAT frauds, ID thefts and other forms of white collar crime, to the tune of a huge £889m or nearly 90 percent of fraud by value. The sophistication of organised fraud in the UK is certainly extremely concerning. More fraud cases have been coming to court in recent years than previously, but one fears that this is just the tip of the iceberg. 2007 saw a respite in prosecutions for frauds against banks and other corporates, but now that the economy looks set to slow, we could see more people attempting frauds to ease their financial burdens. As companies tighten their belts in the harsher conditions and take a closer look at their operations and related expenditure, it is highly possible that a greater number of frauds may be detected.”
Gangs aggressively targeting the Government
Organised criminals accounted for nearly 90 percent of fraud by value in 2007 (£889m), with the Government agencies having been the primary target (£833m). This represents an enormous jump from 2006, when professional gangs accounted for £221m of fraud. Once again last year, carousel fraud on items such as mobile phones represented a substantial proportion of the value of organised fraud. It remains to be seen whether the reverse charging mechanism introduced by the Government last summer for domestic supplies of mobile phones and computer chips, combined with the continued success of their operational efforts, will have a material impact on the scale of carousel fraud cases, or whether gangs will simply move their focus to other goods.
ID theft continues to have an impact
Gangs have also aggressively exploited ID theft to perpetrate scams, making false benefit or tax credit claims. One husband and wife team claimed benefits for no fewer than eight adults and forty six children at a one bed flat in London, defrauding the public purse of over £1.1m. Other gangs targeted the transport system, organising large scale frauds on fake bus and tube passes.
Some criminal groups have become creative and brazen in the manner in which they steal and utilise ID’s. One gang stole homeowners’ identities by posing as would-be buyers, collecting enough details on the house to apply for title deeds from the Land Registry and then remortgaging the properties. A Midlands-based gang got away with some £500,000 in this way.
Another Surrey-based man simply took down details of passing cars and then approached car brokers claiming to be an agent working on behalf of a non-existent customer, and set up financing agreements with the money going into an account he controlled.
Banks and companies need to remain vigilant
Whereas the Government suffered heavily in 2007, financial institutions and other corporates enjoyed a fall in the value of frauds against them. £37m of fraud against banks came to court in 2007, substantially down from over £140m in 2006, while commercial business suffered £24m of fraud compared to £81m a year earlier. Nevertheless, particularly in the current economic climate, corporates need to remain extremely vigilant to the fraud threat.
Employees and management carried out roughly the same number of frauds (36 and 34 respectively), again down from 2006 (54 and 48). Once again though, management inflicted significantly more damage on their companies with their frauds totalling £54m, double the £27m that employees perpetrated.
Champagne to migraine
Though levels overall were down, there was a notable number of accounting frauds – 21 of them representing £20m of fraud. Some internal fraudsters were extremely well-trusted by their company – such as the company accountant whose Buckinghamshire firm paid for a champagne reception before he left on his honeymoon. While he was away, they discovered a £700,000 hole in their finances which he had been siphoning away to fund a lavish lifestyle. Another FD of company in London manipulated the company’s finances to embezzle some £2m which she used to buy a string of properties, luxury cars, and even a £100,000 kitchen which was featured in a glossy magazine.
Taking the rap
Other fraudsters were more creative in their efforts, such as the Northern Ireland man who routinely removed barcodes on items in a hardware superstore and replaced them with his own false barcodes so that he paid less then the items were worth. He then sold the goods on eBay and made an estimated profit of £100,000 before he was finally caught.
Another fraudster was brought to book because he could not resist recording his exploits in a hip-hop video. The rapper from London incorporated rhyming lyrics in his songs about his involvement in stealing scores of high performance cars and selling them under false identities. The scam was worth over £600,000.
Not just a London problem
While London and the South East was once again the dominant centre for fraud, with some 65 percent by value (£655m) and over 35 percent of the cases (77), other parts of the country also saw significant levels of activity. There was some £200m of fraud in the North West (30 cases) and £117m was recorded in the Midlands (31 cases).
Hitesh Patel concluded: “Given the developing economic conditions, companies and individuals need to be more alert than ever to the fraud threat. At a company level, they should bolster their routine monitoring and oversight processes with the use of data analytical tools to identify any unusual or suspicious trends. As individuals meanwhile, we all need to be vigilant and protect our personal data. The bottom line is that the cost of fraud goes beyond the financial. The emotional and social impacts are often forgotten.”
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