BDO LLP study shows reported value of fraud now at highest level in 15 years

The total value of fraud has risen by 538% to £2.11 billion in the last 15 years and is up 6.5% from £1.99 billion in 2016. According to the latest study conducted by BDO LLP, the volume of reported fraud increased by 172% to 577, which is up from 212 cases in 2003. Fraud in the financial services sector increased dramatically last year, rising by 318% to reach a figure of just under £900 million.

The latest analysis by the accountancy and business advisory firm, which examines reported fraud cases over £50,000 in the UK, reveals that the number of such cases has increased exponentially. The average value of fraud has also risen by 133% to £3.66 million from just over £1.5 million in 2003.

In the last year, the financial services sector has witnessed the largest increase as the total number of cases rocketed by 72.4%. Another dramatic increase in 2017 occurred in the charity sector, with the value of fraud rising by over 300% to £8.5 million. That’s up from £2.1 million in 2016. The number of reported cases almost doubled.

In contrast, public administration fraud saw a 73.2% drop in value to £368.5 million from £1.37 billion in 2016. This was due in large part, however, to the absence of a single £1 billion VAT ‘carousel fraud’ case that occurred in 2016.

The greatest increases in fraud over the past 15 years have occurred in real estate, rental and leasing fraud, with the total value shooting up to £276.5 million from £1.08 million, and retail trade fraud, which has grown from £15.5 million to £337.3 million. The value of educational services fraud also increased significantly between 2003 and 2017, albeit at a much lower level, rising from £6.98 million to £31.53 million.

Kaley Crossthwaite, partner and head of fraud at BDO LLP, commented: “While a significant amount of fraud still goes unreported, our research suggests that people are becoming a lot more courageous in coming forward to report it and recovering their assets through the criminal or civil justice systems. There’s now an expectation that fraud will be reported and investigated internally by corporations, charities, public sector entities and companies operating within regulated sectors. Stakeholders are seemingly no longer content to simply sweep fraud under the carpet in the hope that it will all go away.”

Regional fraud ‘hotspots’

London and the South East remained the biggest ‘hotspot’ for fraud in the UK in 2017 with the number of cases up by almost 30% to 176, and the total value increasing by 76.9% to £1.63 billion.

Two of the biggest frauds in this region included a family of VAT scammers who stole £45 million from taxpayers and lavished it on a fleet of luxury cars, race horses, gambling trips to Las Vegas and mansions around the world and a complex £121 million scam whereby two city traders became motivated by greed and used sophisticated means to defraud a Russian bank.

The Midlands continues to remain the largest ‘hotspot’ for fraudsters outside London, with a 38% increase in the number of reported fraud cases since 2003, but an overall fall in the average value of fraud from £6.8 million to £3.2 million.

The average value of fraud in the North West has increased by 255% to £1.68 million, with tax fraud accounting for more than 56% of the total value of all reported cases in the region.

Sat Plaha, partner and national head of regional forensic services at BDO LLP, stated: “While the regions outside London have experienced a fall in the total value of fraud in 2017, the 16% increase in the reported cases of fraud in those regions shows the growing risk of fraud. Rising economic pressures and the continuing sophistication in technology mean that fraud is still a contemporary risk for most businesses. Therefore, it’s essential that businesses continue to deploy a proactive risk-based approach to protect themselves from harm’s way.”

Core driver of fraud

Greed remains the greatest driver of fraud across the UK, with 18.9% of cases stemming from human avarice. After greed, gambling and debt were the largest contributing factors to reported fraud, with 33 and 19 cases respectively out of a total 577.

In 2017, the research highlighted a number of instances where celebrity endorsements have been used to lend credibility to scams, as well as instances where celebrities have either been the victims of fraud or, in the case of a former rugby star from Richmond, part of the defrauding process itself.

One of the biggest celebrity-related frauds was a £100 million tax scam in which 730 celebrities, including comedians, sports stars and relatives of politicians, were conned into believing they were investing in cutting-edge R&D reforestation projects in Brazil and China.

There has also been a significant increase in counterfeiting fraud, whereby products such as designer clothes, accessories, electricals or cosmetics are fake brand copies, but sold as being authentic, with the value up 201% on 2016 to £16.9 million, and the number of cases rising by 375% from 4 to 19.

Kaley Crossthwaite concluded: “There’s a common misconception that you will be able to spot a fraudster. You cannot. Our research shows that anyone can be a victim, including celebrities, rich and poor alike. The old saying: ‘If it looks too good to be true, it probably is’ is so important to remember. Don’t be taken in by luxurious brochures or fancy websites and celebrity endorsements. It may all be a sham.”

About the Author
Brian Sims BA (Hons) Hon FSyI, Editor, Risk UK (Pro-Activ Publications) Beginning his career in professional journalism at The Builder Group in March 1992, Brian was appointed Editor of Security Management Today in November 2000 having spent eight years in engineering journalism across two titles: Building Services Journal and Light & Lighting. In 2005, Brian received the BSIA Chairman’s Award for Promoting The Security Industry and, a year later, the Skills for Security Special Award for an Outstanding Contribution to the Security Business Sector. In 2008, Brian was The Security Institute’s nomination for the Association of Security Consultants’ highly prestigious Imbert Prize and, in 2013, was a nominated finalist for the Institute's George van Schalkwyk Award. An Honorary Fellow of The Security Institute, Brian serves as a Judge for the BSIA’s Security Personnel of the Year Awards and the Securitas Good Customer Award. Between 2008 and 2014, Brian pioneered the use of digital media across the security sector, including webinars and Audio Shows. Brian’s actively involved in 50-plus security groups on LinkedIn and hosts the popular Risk UK Twitter site. Brian is a frequent speaker on the conference circuit. He has organised and chaired conference programmes for both IFSEC International and ASIS International and has been published in the national media. Brian was appointed Editor of Risk UK at Pro-Activ Publications in July 2014 and as Editor of The Paper (Pro-Activ Publications' dedicated business newspaper for security professionals) in September 2015. Brian was appointed Editor of Risk Xtra at Pro-Activ Publications in May 2018.

Related Posts