UK fraud cases reach record levels

A surge in frauds perpetrated by organised crime gangs led to a record number of fraud cases in 2006, according to KPMG Forensic’s Fraud Barometer. The year saw 277 fraud cases coming to court, the largest number ever recorded in the 20 year history of the Barometer. Over 40 percent of all fraud cases in the second half of last year were carried out by professional criminals (63 cases out of 154), compared with a quarter of cases in the first half of the year (30 out of 123). Meanwhile, companies’ own managers were responsible for 40 percent of fraud by value – some £350m.

KPMG’s analysis, the longest-running research in the UK of its kind, considers major fraud cases being heard in the UK (charges of over £100,000 in the Crown Court). The 277 cases reaching court in 2006 were worth £837m, compared to 222 cases worth £942m in 2005.

The value of frauds coming to court in 2006 was the third highest in the Barometer’s history, although it was down from the level recorded in 2005 - when the figures were inflated by one case worth £260m on its own.

Jeremy Outen, partner at KPMG Forensic, said: “The proliferation of frauds carried out by organised crime gangs is extremely worrying. They have clearly been stepping up their efforts, with ID theft, card scams, bank insider frauds, money laundering and cigarette and VAT frauds their most common forms of attack. Despite considerable Government efforts to make it harder for such gangs to operate, there is still a long way to go. With company managers committing nearly £350m of fraud as well – nine times the value of the frauds committed by the people they supervise – the figures produce a picture of a country where fraud is becoming worryingly deep-rooted.”

Organised criminals target Government and banks
The biggest target of organised crime activity was the Government, through carousel fraud on items such as mobile phones and computer chips, and the evasion of duty on items such as cigarettes and fuel. The biggest carousel case of the year was valued at £57m. Overall, the Government was the target of £312m of fraud in 2006.

But much organised activity was targeted at the financial sector too, which suffered £141m worth of fraud in total. There were many examples of gangs carrying out web-based scams to obtain and abuse credit card information, and several of gangs placing or coercing members of bank staff to pass on confidential account and card details.

One gang, operating before chip and PIN was introduced, used MP3 players to bug free-standing cash machines in bars, bingo halls and bowling alleys and capture the card details of unsuspecting bank customers as they withdrew their cash – enabling them to create cloned cards and carry out £200,000 of fraudulent purchases.

Lone operators
Individual fraud carried on unabated in 2006 too. Employees and managers committed roughly the same number of frauds last year, but managers caused considerably higher losses (£347m compared to £37m). One example was the finance director of a manufacturing company in Warwickshire who stole £1.6m from the firm over a six year period. He wrote company cheques to himself, made unauthorised transfers into his personal account and paid an additional salary to both himself and his wife who remained on the payroll even though she had only worked there for a short period in the nineties.

However, some much lowlier employees also carried out large-scale frauds – such as the £15,000 a year book-keeper who diverted £1.3m from the seafood company she worked for to fund a lavish lifestyle over a period of seven years.

•Date: 30th January 2007 • Region: UK •Type: Article •Topic: Operational risk
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