The total value of fraud in the UK reached a 15 year high in 2017, but has now more than halved from £2.1bn in 2017 to £746.3m in 2018, according to research carried out by accountancy and business advisory firm BDO LLP. However, the volume of fraud reported only fell by 9% from 577 cases to 525 and experts warn that the full scale of financial loss could be much higher with as little as just 1 in 50 cases of fraud being reported. According to the research, high value and complex fraud is often dealt with outside of the judicial system as companies want to avoid reputational damage.
Kaley Crossthwaite, Partner and Head of Fraud at BDO, commented: “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.”
So what controls and governance procedures do BDO LLP recommend? Kaley continues: “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.”
By far the largest increase in the value of reported fraud was seen by the manufacturing sector with a whopping 1014% increase to £22.8m in 2018. Cases of fraud in the utilities sector also saw a large increase from below £618,000 in 2017 to £9.3m in 2018. In terms of regional areas, London and the South East remain the biggest hotspot for fraud in 2018 accounting for over 60% of all reported fraud in the UK. Outside of London, Yorkshire took over from the Midlands in 2018 as having the highest value of fraud with an increase to £52m.
Sat Plaha, Partner and National Head of Regional Forensic Services at BDO, stated: “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%, 198% and 88% 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.”
Where motives are known, greed remains to be the greatest driver of fraud in the UK accounting for 76.6% (by value) of cases with a known motive. Gambling and health/depression were the next greatest contributors.
Unauthorised use/misuse of assets fraud has increased in value by an astronomical 57185% to £115.1m in 2018. In one particular case, a pair of brothers from Norfolk defrauded over 200 victims, most of whom were elderly and vulnerable, by producing false records to gain access to their pension funds. Unknown to the clients, they then transferred the money (almost £17m in total) to a high risk finance scheme with a different company they owned.
Cross-boarder collaboration helped the UK tie up some long standing cases last year. Specialist HMRC officers managed to track down one of the UK’s most wanted tax fugitives who escaped to Ireland 12 years ago. Another notable cases was the imprisonment of the perpetrator of a £9.8m international VAT fraud involving a complex trading chain in the UK, Spain, Gibraltar and the USA.
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.”