“Fraud is complex and rarely about one issue,” says BDO

BDO LLP has today released the results of their annual FraudTrack report, and they have proven to be surprising. The report examines fraud cases valued over £50,000 in the UK over a 12-month period.

The firm has revealed that the value of fraud has more than halved in 2018, the average value of fraud having fallen to £1.4m from £3.7m. In 2017, they reported a record 15-year high—so what has changed?

“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.”

From £2.1bn in 2017 to £746.m in 12 months clearly shows a dramatic drop in the value derived from the number of reported fraud cases in the UK. The drop in the number of reported cases themselves has decreased by 9%, from 577 to 525.

“Fraudulent activity cost the UK almost £750m last year,” said Kaley Crossthwaite, partner and head of fraud at BDO.

She continued: “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.”

Manufacturing, utilities, and fraud

BDO reported that the manufacturing sector had the largest overall increase in the value of fraud, with an incredible increase of 1014% (£22.8m). This is paired with recorded manufacturing fraud cases increasing by 37.5%.

Meanwhile, in the utilities sector, the value of fraud increased by 1400% (£9.3m). Whilst this is not as alarming a statistic as that of the manufacturing sector, it is important to note that, in 2017, the value of fraud in the utilities sector was only at £618,000.

The firm’s FraudTrack report continued: “Some of the other most notable changes over the last year included a dramatic increase in value across charity and construction sectors, which grew by 135% and 223% respectively, to £20m and £8.3m.”

Crossthwaite added: “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 fraud 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.”

Hotspots for fraud

Perhaps unsurprisingly to many, London and the south west were subjected to 60% of all recorded fraud cases in the UK in 2018.

The total number of cases reported in 2017 and 2018 were the same; it is only value that has proven to have decreased by 70.7% (£476m).

In 2018, Yorkshire became the largest hotspot for fraud in the West Midlands, with an increase from £860,000 to £1.3m in 12 months—an increase of 51.2%.

“The true cost of fraud could be as high as £37.5bn per year, based on average fraud values found in our research.”

Although this research only covers instances that have been reported, it is reassuring that the value has dipped over the past 12 months. Nonetheless, Crossthwaite has warned that there are a large number of cases that remain ‘unknown’ from the official capacity, due to their not being reported.

She said: “While the fight against fraud appears to have strengthened, our experience suggests that as few as one in fifty cases of fraud in the UK is likely to be reported. These figures therefore only shine a spotlight on the visible part of a much wider problem.

“The true cost of fraud could be as high as £37.5bn per year, based on average fraud values found in our research. Increasingly we are seeing high-value complex fraud being dealt with outside the judicial system as companies prefer to deal with these situations behind closed doors to avoid reputational damage.”

According to Sat Plaha – partner and national head of regional forensic services at BDO – East Anglia, the west country, and Scotland have had sharp increases in fraud value: 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,” Plaha concluded.

Greed is the “greatest driver of fraud”

Human avarice is allegedly responsible for 46% of fraud cases in the UK, BDO has stated; 76.6% of the total value of recorded fraud with a known motive.

The firm added: “After greed, from a cost perspective, gambling and health/depression were the greatest contributors, with a value of £24m and £16m.”

“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.”

 The increase in the unauthorised use of assets fraud cases is “astronomical” with a 57185% increase in 2018 (£115.1), and a 1750% increase in cases (2 to 37).

Cross-border collaboration has previously aided the UK’s hunt for those who have committed fraud. For example, in the case of one of the country’s most wanted tax fugitives – who escaped to Ireland 12 years ago – due to cross-border collaboration, specialist HMRC officers were able to track them down.

“Fraud is complex and rarely about one issue,” Crossthwaite pointed out.

BDO’s head of fraud concluded: “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.”