- More than £84m fraud against commercial businesses in first half of the year
- UK businesses hit by £95m fraud in the first half of 2016
- Fraud against the health sector up 88% in first half of 2016
- Charities and not for profit groups targeted by fraudsters
KPMG’s Fraud Barometer, which measures fraud cases with losses of £100,000 or more reaching the UK courts, shows a 585% increase in the value of prosecuted fraud against commercial businesses in the region, as prosecuted fraud against financial institutions and investors fell.
Despite an overall drop of 40% in the value of prosecuted fraud hitting the region in January – June 2016 to £137m compared to £228m for the same period in 2015, the research found that frauds being committed by professional criminals and employees in the region were on the rise. There was a shift in the value of fraud undertaken by management level staff to more junior staff and in some cases, staff were joining organisations with the specific intent of exploiting internal controls. The research found a 64% increase in the amount of fraud being conducted by professional criminals in the first half of the year when compared to 2015.
Chris Wheeler, Forensic Director for KPMG in the South East commented: “We have definitely seen an increase in the activity of criminal gangs working with employees within organisations, in particular employees in linchpin positions for circumventing controls. Consequently many businesses now face an increased ‘threat from within’ coupled with a seemingly exponential rise in external threats, in the form of cyber-attacks. Employers need to be robust with their recruitment policies, particularly around screening for new employees.
“An organised criminal’s view of a target business is no different to the manner in which a sales manager views a likely prospect; know your customer, be patient and develop a strategy. Whilst businesses can counter these measures to a degree through robust internal controls and employee screening, they must still remain guarded to the “cyber-chancer”. Such chancers attack businesses using spoofed emails, to them success is simply a numbers game. Cast a wide enough net and someone will get caught.”
Cases from the region included in the Fraud Barometer included a 35 year old Chatteris manager of a Cambridgeshire recycling company who fraudulently claimed more than £1.1 million in VAT repayments who was jailed for four years. The investigation also revealed that he had drawn an £82,000 salary without paying any Income Tax or National Insurance.
A PA to a company boss who used her corporate credit card to blow £264,000 on designer handbags, foreign travel and a car was jailed for three and a half years. The 41 year old from Colchester lied her way into a job working for the Chief Executive of a London marketing firm by concealing a string of previous convictions for similar scams. She was caught when a colleague discovered a memory stick containing various drafts of the same bank statements.
In another case, a drugs company boss who submitted £3.1million worth of bogus invoices to a bank in a bid to save his crumbling business empire was jailed for almost four years. By the time his scam was discovered, it was too late for the bank to recover all of the money, resulting in a net loss of £1.8million. The company director had signed a 'factoring' agreement in 2012 by which the bank would buy debts owed to his Enfield-based firm to provide the failing business with much-needed cashflow. The man had forged invoices and proof of delivery for large batches of medication from genuine pharmaceutical businesses bringing the 'wholly innocent' companies under suspicion from the police.
The UK Story
There was an overall fall in the volume and value of fraud going to courts in the UK to £328m in the first six months of the year. However, some sectors of society – including the health sector and charities – witnessed large increases in the value of fraudulent attacks against them. Much of the activity was conducted by middle class professionals turning to fraud by cashing in on their reputation, or by fraudsters claiming connections to those with renowned reputations.
KPMG’s Fraud Barometer, which measures fraud cases with losses of £100,000 or more reaching the UK courts, shows that the value of prosecuted fraud fell in the first half of 2016, from £385m in 2015. This drop was caused in large part by a reduction in smaller value cases, which also caused the average value of fraud per case to increase to £2.9m in 2016 compared to £2.4m in 2015. The drop in fraud recorded by the KPMG Fraud Barometer is considered to be a temporary aberration. UK law enforcement are immersed in a series of complex and large fraud investigations of over £100m in value. However, we also note the increasing number of overseas and cross-border schemes targeting the UK, which often target large numbers of UK-based businesses and individuals; these are difficult to bring to Court in the UK.
The vote for Brexit has caused an environment of uncertainty and economic volatility thus providing the perfect ecosystem within which fraudsters will conceal, mislead and misrepresent as they exploit people’s vulnerabilities and confusion about the future. The landscape may be changing, but the fundamentals of managing risk and preventing fraud remain the same – keep calm and stay vigilant.
Fraudsters push the boat out at companies’ expense
Commercial businesses were victims of fraud to the tune of £95m in the first half of the year with SME businesses particularly vulnerable. Most often they were at the mercy of internal threats from trusted staff exploiting positions of authority, but the two biggest cases arose from external threats.
In one case, a charlatan posed as a billionaire banker to the Pope to help a gang swindle a shipping firm out of £73m. The firm had been looking to increase its capital to fund the construction of a new ship. The 49 year old duped them into handing over the funds by claiming he could get them a 1,200% return using a secretive Papal trading platform, but instead spent their millions living the high life.
In the other case, an advertising scam saw thousands of small businesses across the country tricked into paying for adverts in a magazine that never materialised. It was estimated that up to 15,000 victims fell prey to the sales team, who falsely claimed to be representing the police, fire or ambulance services to create trust and respectability. With threats of legal action if invoices were not paid, some desperate businesses sold assets or defaulted on loans to pay off the scammers.
Commenting on the results Hitesh N Patel, UK Forensic Partner at KPMG, said:“While economic conditions remain soft, it is unsurprising that commercial enterprises and investors are looking for new ways of making money, often dealing with people they have not encountered before. For commercial businesses, two of the biggest frauds recorded this year progressed so far because the fraudsters were able to create a reputational illusion, convincing victim companies to hand over large amounts of money – often sums that materially impacted their ability to operate. As the environment for business continues to be tight and competitive, fraudsters are able to hide easily among genuine businesses.”
Fraudsters plaguing the healthcare sector
The KPMG Fraud Barometer data also showed fraud against the health sector increasing over 88% in the first half of this year to £7.2m. Most of these frauds were committed by professionals within the industry. In one case a dentist charged private patients for work and then made over 6,600 fraudulent claims to the NHS for the same work. In other cases, a drug company boss submitted bogus factoring invoices totalling £3.1m to a bank in a bid to save his crumbling business, a firm of solicitors allegedly committed nearly £1m in medical invoice fraud, and two practice managers stole from their respective GP surgeries leaving the practices in financial distress.
Hitesh N Patel commented: “These frauds in the healthcare sector have been committed by a range of professionals, from frontline medicine to those in the supply chain, who abuse their status and authority to bolster their income out of greed, or to maintain a lifestyle in the face of business problems. Such circumvention of financial controls mirrors the experiences that we often see in commercial businesses. Trusted employees and professionals find that they have built up the authority and know-how to steal funds, and in submitting to the temptation destroy the trust and livelihoods of others.
"The cases of fraud that we are seeing recorded in the healthcare sector are likely to be just the tip of the iceberg as a recent NHS report found that in England alone up to £5.7bn a year is potentially being lost to fraud from its £100bn budget. This does not just have consequences for the healthcare sector but for us as patients as frontline services are impacted."
Fraudsters test the faith of charity donors
The Fraud Barometer also recorded almost £6m worth of fraud in the first half of the year in which fraudsters hijacked charitable donations, pocketing the donations or the gift aid for themselves. In one scam, a software programmer exploited the death of a charity founder who set up a programme helping women and children in crisis around the world. He faked donations and submitted tens of thousands of Gift Aid repayment claims to HM Revenue and Customs. He was jailed for 12 years having pocketed more than £5m in gift aid from the scheme.
Hitesh N Patel said: “Scams targeting income streams of charitable foundations deprive these organisations, and those who depend on them, of desperately needed and hard won funds. Charities are built on human good will and trust, and are focused on help not profit; sadly, this can make them a target for fraudsters. Private and corporate donors can play their part in stamping out these frauds in remaining alert and taking simple steps such as checking the track record of a charity. These are certainly far from victimless crimes and can have huge consequence as it reduces the services available to help support those who need it most.”
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For more information, please contact:
Emma Murray, PR Manager at KPMG
+44 (0) 20 76946506
Email:emma.murray@kpmg.co.uk
Follow us on twitter: @kpmguk
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