KPMG Forensic Fraud Barometer, July 2011

The first six months of this year saw UK fraud hit record highs of £1.1bn, with almost half of all incidents now affecting commercial and financial businesses.  That's a 100 per cent increase year on year and with the average case value of private sector fraud jumping by 64 per cent to £4.1 million this is further exacerbating difficult trading conditions.

Who is committing fraud?

While the greatest burden, by value and number of cases, of fraud has been borne by Government agencies, the private sector is also under intense attack.

In fact, the average case value of private sector fraud has jumped from £2.5m, January - June 2010, to £4.2m for the same period this year.

The evolution of ecommerce, as well as increased reliance on automated payment systems and the ability of professional criminals to stay one step ahead, has swollen overall UK fraud figures.

But, fraud levelled at UK businesses tears at the very fabric of the economy. Although it is just as prevalent in larger organisations, the small and medium sized companies are more likely to suffer dire consequences as a result. For SMEs fraud can often lead to significant cash flow problems resulting in redundancies - and at worst a fight for survival.

This is illustrated by a Wirral business brought to its knees by the in-house accountant who stole nearly £170,000 and then bragged about his lavish lifestyle on the internet. This instance led to multiple job losses while he took luxury holidays.

The impact of fraud can be long lasting, affecting the organisation's growth and competitiveness. It may dampen customer and staff confidence, cause reputational damage and detract from simply running the business.

Over-crowding

The UK (albeit public or private sector) is now fighting multiple enemies. The majority of fraud is committed by professional criminals - with fraud perpetrated by criminal gangs rising 107 per cent in the first half of 2011.

 Internal fraud committed by employees (of all levels of seniority) also did £225m worth of damage this year (up from £181m Jan - Jun 2010), with management fraud, averaging at £7.3m a case, and employee fraud around £708k.

Operating in positions of trust and authority, helping them conceal their tracks with greater ease - the more senior the employee the more damage they can inflict when acting fraudulently.

Focus on investors

Fraud against investors accounted for £263m - 25 per cent of all fraud in the first six months of 2011. In June four men were charged with fraud through land banking schemes which resulted in investors losing millions of pounds.

As investors search to get greater returns in a subdued economic climate, they are increasingly vulnerable to exotic and novel investment scams - which are rarely transparent or straightforward. Investors should do their research and be alert to opportunities that seem to offer returns significantly above the market rate - if an investment looks too good to be true, it probably is.

Fight against fraud

With the introduction of the UK Bribery Act and the National Crime Agency it is clear the Government are taking the fight against fraud very seriously. Working collaboratively with Government, business are also strengthening their defences and taking a less reactive, more preventative stance.

The culture and tone at the top are critical to stamping out internal fraud. In order to guard against professional criminals, and those operating outside the business, companies must fully assess where in their operations they are vulnerable. They should arm themselves with a set of controls that enable greater detection, such as whistle blowing lines and fraud risk reviews ,while thoroughly mining the wealth of data that sits within an organisation and if analysed would identify fraudulent activity.

This huge increase in the level of fraud hitting the private sector demonstrates the importance of ensuring that companies have mechanisms to prevent fraud and detect misconduct effectively.

Article author

Hitesh Patel
Partner, Investigations and Compliance
KPMG in the UK
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