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Fraud high

The elderly and the vulnerable remain at risk according to a new survey of reported fraud cases by an accountancy and business advisory firm. The total value of reported fraud in 2016 hit a five-year high, increasing 31.5 per cent to £2.0bn, says BDO LLP.

Despite the hike, the latest BDO FraudTrack analysis, which examines reported fraud cases over £50,000 in the UK, finds that the number of reported cases fell slightly (504 in 2016 compared to 519 cases last year). This means the average value of fraud rose 35.4pc to a five-year high of £3.9m.

Public administration was the industry sector with the highest level of reported fraud, accounting for £1.4bn of the UK total. This has risen 204.7% from the £450.9m reported in 2015, due in large part to a single billion-pound VAT ‘carousel fraud’ case involving a woman from York. The volume of fraud in public administration also rose, climbing from 114 cases in 2015 to 150 cases in 2016.

With the public and regulatory spotlight continuing to scrutinise financial services ever more closely, both the volume and value of reported fraud in the sector fell during 2016. The value of reported fraud in financial services fell more than 62.1%, from £567.2m in 2015 to £214.9m in 2016. The volume of reported fraud also fell, dropping from 70 cases in 2015 to 58 cases in 2016.

Within the sector, money laundering showed the biggest decrease in the value of fraud, falling from £201.6m in 2015 to £98.9m in 2016. The volume of cases, however, rose from 15 last year to 20 cases this year. A key case involved a man arrested by City of London police on suspicion of money laundering. The arrest was made following the investigation of a UK bank account thought to be linked to an organised crime ring. Police discovered £30m worth of banker’s drafts during a raid on a home in the Welsh valleys in what is thought to be the biggest money seizure by UK law enforcement.

Mortgage fraud and third party fraud also showed a significant year on year decline both in terms of value and volume. Mortgage fraud fell from £151.1m in 2015 (13 cases) to £54.8m in 2016 (4 cases), while third party fraud fell from £209.7m in 2015 (26 cases) to £47.6m in 2016 (17 cases).

Kaley Crossthwaite, partner and head of fraud at BDO, said: “It is extremely encouraging to see that the public and regulatory scrutiny within financial services is starting to gain some traction in reducing the volume and value of reported fraud. In particular, we have seen a marked decrease in the level of insurance fraud as firms in the sector adopt ever more stringent systems and controls to address fraud. Fraud in public administration shows a significant spike due in large part to a £1bn single VAT ‘carousel’ tax scam, however stripping this out the sector still shows a sharp increase in the volume of reported fraud, most of which involves various types of tax fraud.

“As with last year, the numbers have been skewed slightly due to a small number of very large cases. Removing these anomalies would show an apparent fall in both volume and value year-on-year. However, this would not give us the full picture. Many high value complex fraud cases continue to be dealt with outside of the judicial system as companies prefer to handle these situations privately to avoid the reputational damage to their businesses. Our experience would suggest that both volume and value in real terms continue to rise despite efforts by companies to strengthen their processes.”

Regional hotspots

Looking at fraud geographically, London and the South East and the West Midlands remain the biggest hotspots for fraud in the UK despite a significant fall in the value of fraud compared to last year. This excludes Yorkshire, which rose 388.1pc to £1.02bn due to the £1bn VAT fraud attributed to a woman from York.

From a volume perspective, London & the South East continues to be the biggest contributor of fraud in the UK, with 159 reported cases (31.6pc of all cases) followed by the North West with 73 reported cases (14.5% of all cases) and the West Midlands with 53 cases (10.5pc of all cases).

The biggest case in London involved a £79.5m Ponzi scheme, by three men who claimed their electrical wholesale business had won a contract to supply electricals to the London Olympic Village. Their victims were persuaded to invest hundreds of thousands of pounds to meet urgent orders then paid seemingly high returns before being asked to “roll over” their investments for two months.

Kaley Crossthwaite said: “Looking beyond the anomaly of the £1bn VAT fraud, the good news is that the value of fraud has fallen in many key areas and sectors. Unfortunately, volumes continue to remain high at over 500 cases a year suggesting that, while people are picking up on frauds before they spiral too far out of control, there is still plenty of fraud out there. Sadly, the findings of this research are just the tip of the iceberg and many frauds continue to go on undetected. In many instances, even when they are picked up, corporates prefer to resolve the situation privately to avoid the public scrutiny that inevitably comes from going to court.

“Our advice has always been and continues to be, to ensure that your businesses implement strict systems and controls to ensure that no one individual has unfettered access or responsibility over company accounts and that all systems and controls are tested regularly.”

Fraud against individuals continues to be the most common type, accounting for 30.4pc of all reported cases. Prosecutions against fraudsters in this area have remained at high levels by volume year-on-year, but in value terms they have fallen for the first time since 2012.

In 2016 there were 153 reported cases of fraud, with a total value of £172.3m compared to 152 cases totalling £276.7m in 2015. An analysis of these frauds shows that the majority of cases continue to target the elderly and vulnerable. Two of the biggest frauds in this area included a £9m fraud by four businessman who conned victims into signing up for satellite TV warranties they did not need and mis-selling deals to stop nuisance calls; and a £3m scam operated by five con-artists which saw pensioners and young families buying homes on land in Warwickshire that could never be developed.

Kaley Crossthwaite added: “While the number of scams in this area has remained high, the value has come down for the first time since 2012 suggesting that, although people are still being conned, they are waking up to the issue sooner and are more effectively taking remedial action. Government and corporate initiatives highlighting these Ponzi and other scams, as well as highly publicised cases in the press, are clearly proving effective tools in educating people to the dangers that they and their dependents are facing.”


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