2011-07-11
By Deborah Ritchie
Pre-occupied with battling the on-going downturn, UK businesses now also find themselves fighting more fraud. The first six months of this year saw UK fraud reach £1.1bn (from £609m during the same period of 2010) with almost half (in volume terms) hitting private sector. Such activity cost £266m – nearly a third more than in 2010.
While the greatest burden, by value and number of cases, of fraud has been borne by government agencies, the private sector is also at risk. The average case value of private sector fraud, according to KPMG, has jumped from £2.5m, January – June 2010, to £4.2m for the same period this year.
Commenting on the burden, Hitesh Patel, UK forensic partner, KPMG, said: “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.”
The majority of fraud is committed by professional criminals – with fraud perpetrated by criminal gangs rising 107% 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,” Hitesh explained.
Fraud against investors accounted for £263m – 25% 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,” Hitesh said.
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.” Hitesh concluded.
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