‘Step-change’ in level of UK fraud: KPMG

Fraud levels in the UK have undergone a step-change in recent years and show no sign of turning back, according to new figures released in KPMG Forensic’s Fraud Barometer. For the fourth six-month period in a row, over 100 fraud cases worth £100,000 or more have come to court, with their value up around £600m (£594m) for the third time over that period. This is a higher value in six months than in the whole of 2000, 2001, 2003 or 2004.

Hitesh Patel, director in KPMG Forensic, said: “The recent trend now looks unmistakable. The amount of fraud coming to court has undergone a step-change over the last couple of years, and these high levels look like they are here to stay. The good news is that more fraud is being detected and prosecuted in court. The bad news is that this is probably – at least in part – because more fraud is being committed. Organised fraud by professional gangs is a major problem, though it is encouraging that there have been some very significant carousel (missing trader) fraud prosecutions in the last six months. It remains to be seen whether changes to the way that VAT must be paid by traders on mobile phones and computer chips, introduced from 1 June, will result in a decrease of this kind of activity – or whether it will shift the focus of professional criminals to other commodities.”

The biggest cases coming to court over the last six months have been carousel frauds. Four cases were between them worth a huge £440m, with the single largest case valued at £250m alone. But professional criminals have not confined themselves to carousel fraud, with over a third of cases coming to court carried out by professional gangs at a total value of £538m (91 percent of the total value). Frequent areas of activity have included cigarette and duty frauds, benefits scams, ID thefts, bank card frauds, and money laundering.

With such large carousel frauds coming to court, the Government was the main victim of fraud over the period, with £485m of fraud committed against it. Investors (£47m) and financial institutions (£29m) were the next biggest targets.

Insider frauds
However, in terms of number of fraud cases, commercial business was second to the Government (27 and 30 cases respectively), showing that fraud is a persistent and major business risk for companies, though the average value of frauds committed is lower (working out at around £630,000 per case).

As ever, there was an array of examples of managers and employees of companies defrauding their employers, often over many years. This included the finance manager in a Hull food manufacturer who stole £850,000 from the company over a period of several years, and even presided over the firm making 11 members of staff redundant due to the firm’s resulting financial difficulties.

However, insider fraud is not confined to management, as in the case of a wages clerk at a top Scottish hotel who stole over £100,000 by making up ten bogus staff and sending their pay to her own bank account for more than four years.

Hitesh Patel said: “It is possible that the very high level of personal debt in the UK (estimated at over £1 trillion) is driving fraudulent behaviour by individuals, increasing the risk to companies of employee and management fraud.”

•Date: 1st August 2007• Region: UK •Type: Article •Topic: Operational risk
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