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Fall in reported fraud

The total value of fraud – reported fraud – in the UK more than halved in 2018, after a record 15-year high in 2017, down from £2.1bn to £746.3m, says the accountancy firm BDO LLP, in its annual FraudTrack report.

The analysis, which examines reported fraud cases over £50,000 in the UK, suggests that despite that drop in value, the number of reported fraud cases has remained broadly in line with the previous year, decreasing 9pc from 577 to 525. BDO found that the average value of fraud has fallen to £1.4m, down from £3.7m in 2018.

Kaley Crossthwaite, Partner and Head of Fraud at BDO, said: “Fraudulent activity cost the UK almost £750m last year. Although significantly less than the record-high levels of 2017, individuals and businesses are still paying a high price for criminal activity that can often be avoided with better controls and governance procedures in place.

“While the fight against fraud appears to have strengthened, our experience suggests that as few as one in 50 cases of fraud in the UK is likely to be reported. These figures therefore only shine a spotlight on the visible part of a much wider problem. The true cost of fraud could be as high as £37.5bn per year, based on average fraud values found in our research. Increasingly we are seeing high-value complex fraud being dealt with outside the judicial system as companies prefer to deal with these situations behind closed doors to avoid reputational damage.

“The chink in the armour for most UK companies continues to be its people. With third-party and employee fraud making up two of the top five types of frauds by value, there needs to be greater controls and monitoring of who has access to critical information within a business. This, alongside improved education and retraining of workforces, is vital.”

In the last year, the manufacturing sector has witnessed the largest increase in the value of fraud; to £22.8m and the total number of recorded cases rose by 37.5pc. Another increase in 2018 occurred in the utilities sector, with the value of fraud rising to £9.3m, up from just below £618,000 in 2017, despite the number of reported cases dropping by a third.

Some of the other most notable increases in value were across charity and construction sectors, which grew by 135pc and 223pc respectively to £20m and £8.3m.

Regions

London and the South East remains the biggest hotspot for fraud in 2018, accounting for over 60pc of all recorded fraud in the UK, with the number of cases remaining the same, while the total value decreased by 70.7pc to £476m. One notable fraud in London involved the wife of the high-profile fraudster, Jahangir Hajiyev, the former chairman of the International Bank of Azerbaijan who was jailed in 2016 for embezzling billions from the bank. Mrs Hajiyev, whose lavish lifestyle included spending more than £16m in Harrods, was arrested and faces two charges of embezzlement. This was the first case of an unexplained wealth order in the UK.

Yorkshire took over from the West Midlands in 2018 as the largest hotspot for fraudsters outside London, with a 51.2pc increase to £52m. This large increase is due in part to a significant jump in the value of third-party fraud (315.6pc) in Yorkshire with the average value increasing by 51.2pc to £1.3m up from £860k. One of the more notable cases of third party fraud was a £10m case involving money laundering through the resale of tickets for gigs and events.

Sat Plaha, Partner and National Head of Regional Forensic Services at BDO, said: “While London continues to remain the epicentre of fraud in the UK, we’ve seen the most dramatic increases in East Anglia, the West Country and the Scotland by 302.8 per cent, 198pc and 88pc respectively. As resources for tackling fraud come under increasing pressure from all sides, these changes emphasise the acute challenges faced by corporates outside of London and the urgent need to direct greater resources to areas other than the capital.”

Greed remains the greatest driver of fraud across the UK, where the motive is known, the firm says, with 46pc of cases stemming from human avarice and the total value accounting for 76.6pc of recorded fraud with known motive. After greed, from a cost perspective, gambling and health/depression were the greatest contributors with a value of £24m and £16m.

There has also been a big increase in unauthorised use/misuse of assets fraud, with the number of cases up from two to 37, and value up in 2018 to £115.1m. In one case, two brothers from Norfolk, defrauded more than 200 victims out of almost £17m, fraudulently producing client records to persuade their clients, who were often elderly and vulnerable, to sign them in order to gain access to their pension funds. Without the clients’ knowledge, they then transferred the money to another company they owned and placed them in a high-risk finance scheme.

In the last year, the UK saw cross-border collaboration in several cases. One of the UK’s most wanted tax fugitives, who escaped to Ireland 12 years ago, was tracked down in Ireland by specialist HMRC officers. Separately, the perpetrator of a £9.8 million international VAT fraud involving a complex trading chain with companies in the UK, Gibraltar, Spain and the US was jailed.

Kaley Crossthwaite, added: “Fraud is complex and rarely about one issue. In many cases it’s not even perpetrated by one individual or within a singular jurisdiction. In this turbulent and uncertain time in UK/EU relations, the need to work together to bring fraudsters to justice must remain a high priority.”


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