Business Law & Compliance

Fearful about fraud? You should be, because it's rising in numbers and in value across the UK

7 min read

14 January 2019

Features Editor, Real Business

These are the areas of business that are most likely to face fraud threats this year.

2018 was a bad year for fraud (or a good one, depending on what side of the law you operate in). As, according to statistics compiled by KPMG Forensic, the global auditor’s investigatory arm, the number of fraud cases reaching courts in the UK rose by a staggering 78%.

So how did they come to this conclusion? Well, KPMG has its very own Fraud Barometer, which records cases of alleged fraud with a value of more than £100,000. Through their research, they found that 453 fraud cases with a total value of £1.2 billion went to courts across the UK last year. With these growing statistics in mind, it looks like 2019 could be even worse…

Whilst the research revealed one “supercase” (a case greater than £50m), they also found a large number of smaller, yet no less damaging, fraud cases worth between £10 million and £50 million. The ‘”fraud” in question covered areas such as evasion of duty, VAT fraud, investment fraud, loans and mortgages, counterfeit goods, pensions and benefits fraud.

Commenting on the findings James Maycock, Forensic Partner at KPMG said that businesses must do more to protect themselves against fraud, which, through technology is becoming increasingly sophisticated and threatening:

“Fraud levels in the UK continue to rise as criminals look for new ways to exploit both public sector and private sector fraud opportunities,” he says.

“Sophisticated technology and social engineering have become closer to the norm for ‘professional’ criminals – for example, the number of cases of ‘account takeover’ frauds in the Fraud Barometer has more than doubled from 13 cases to 34, with diversion fraud, identity theft and push-payment fraud being the most common methods.”

“Getting the large, often cross-border and complex frauds to court is both time-consuming and resource intensive. This places much more emphasis on businesses and consumers to protect themselves from a growing number of fraudsters who will take advantage given the opportunity,” he adds.

Insurance fraud is rising

The barometer identified a general rise in the value of insurance fraud over the last 12 months. According to the findings, some £17 million pound’s worth of alleged insurance fraud appeared in UK Courts last year. This marks a significant rise in cases compared to 24 cases that had a combined value of £11.9 million during the years 2014 – 2017.

But what are the most popular examples of insurance fraud in the UK today?

The research identified a number of popular “bogus claims” including fake car crash claims, personal injury scams, and even faked death claims that were growing in prevalence within British courts.

“Despite the progress that has been made, particularly with the number of people now using in-car technology to record events in real time, fraudsters will still continue to come up with new and improved ways to scam the insurance system. Like many areas of fraud, insurance fraud has turned into a very lucrative income stream for professional criminals.” – James Maycock, KPMG

Fraud in the building industry rises in numbers, and value

The research also revealed a rise of “rogue tradesmen” committing fraud. Whilst fraudulent repairmen (including a number of builders and roofers) in the past usually committed crimes largely below the £100,000 threshold, the average value is now rising, and rising sharply.

In 2018, KMPG discovered that there were 18 fraudulent tradesman cases with a value of £7m, where mostly elderly homeowners were the target.

“Whilst many fraud attacks take place with a perpetrator behind a computer screen who never actually gets to meet a victim, frauds by rogue traders are done very much face-to-face, where the fraudster will often meet or be welcomed into the home of their victims.  It is often elderly people who are targeted, many spending their life savings on sub-standard, dangerous work that never gets completed,” adds Maycock.

“There are things people can do to protect themselves and their vulnerable friends and relatives from rogue tradesmen, particularly never parting with money up front, not welcoming uninvited callers into homes (even if they have ‘spotted’ something that needs fixing), and asking for ID and checking if they are registered tradesman,” he continues.

Customs fraud rises as Brexit looms

According to the research, some £89 million pound’s worth of duty evasion was recorded in 2018. This was the highest value ever recorded where fraud cases relating to tobacco products doubled. Other common goods being smuggled across the border included counterfeit pharmaceuticals and pirated digital media.

“How Brexit will impact fraud levels is yet to be seen, but new systems and new landscapes, such as new tax and customs arrangements, have in the past opened new and lucrative loopholes ripe for the picking from unscrupulous criminal gangs and businesses looking improperly to cut their costs.”  – James Maycock

Known as “carousel” frauds, these are forms of cross-border frauds that take advantage of a change in multi-jurisdictional tax laws. These, according to the research, have been one of the biggest drivers of fraud recorded in the UK over the past three decades since the Fraud Barometer has been in existence.

These illicit activities have cost the UK public finances an estimated £25-30bn over that period.

With Brexit drawing ever near, it’s certainly a legitimate concern that this issue could get worse. Why? Because, with new customs arrangements potentially coming into play post-Brexit, there is the possibility for professional criminals and misguided businesses to exploit or abuse untested technology or tax collection mechanisms for their own gain.

So go forth SMEs, and be digilent this year…