United Kingdom

Details

  • Service: Advisory, Risk Consulting
  • Type: Press release
  • Date: 04/07/2013

Fraud increases 38% but real cost is human misery 

  • Value of fraud up 38% to £516m for H1 2013, compared with £374m for H1 2012, with average value of cases jumping from £2.8m to £3.5m

 

  • Supply chain fraud is a huge financial cost but also causes real human damage

 

  • Investor fraud almost quadrupled from £19m to £74m

 

  • Middle aged men are core group of fraudsters

 

Fraud cases totalling over £0.5bn were recorded in the first half of 2013, up over a quarter on the previous year, according to KPMG’s latest ‘Fraud barometer’, but a more sinister theme has played out this year with professional criminals becoming the biggest perpetrators – responsible for frauds totalling some £290m, up from £110m in 2012.  One of the key drivers for this has been supply chain frauds worth £61m (up from less than £1m in 2012).  In addition to financial cost, these cause human harm.

 

Hitesh Patel, UK Forensic Partner at KPMG, saysWhile the back end of last year saw a resurgence of traditional con artistry, this year has seen fraud cases turn a darker corner with professional criminals acting across borders for the purpose of defrauding largely governments and financial institutions.  What has been really marked is the increase in the corruption of supply chains by fraudsters.  In one particularly shocking case, a company sold fake bomb detectors to Iraqi authorities, at a financial cost of £55m, but the real damage was human injury and suffering. 

 

"The risk to safety and therefore life through supply chain fraud can have serious operational and reputational consequences which often get overlooked as a result of financial impact being a primary focus.  While procurement functions seek to do relevant due diligence checks on potential suppliers, fraudsters are increasingly getting smarter at circumventing traditional procurement processes and controls. Organisations need to make the most of the numerous data sources available and overlay that with the information they have on a third party they plan to do business with.  Joining up the data and information dots is a key tool in building a more informed picture to prevent risks crystallising to such an extent that it causes damage to consumers and organisations.”

 

Fraud committed against investors also saw a huge increase in 2013, with frauds totalling £74m coming to court.  Patel went on to say: “We can really see the manifestation of pressure on the family purse in the increase in honest investors defrauded.  With pensions, traditional investments and incomes squeezed at the same time as inflationary pressures driving up costs, people are feeling compelled to seek alternative ways of growing their savings to maintain lifestyles.  Unfortunately the public is vulnerable to Ponzi schemes dressed up as legitimate investment opportunities in the form of oil trading, wine clubs and property investments, which really are too good to be true.  We note that the Financial Conduct Authority is moving to regulate alternative asset classes which may mitigate the problem but the public should still be alive to the threat of investment scams.”

 

The latest data shows that governments and financial institutions are really bearing the brunt of the cost of fraud with £405m suffered in 2013 compared with £271m in 2012.  One of the main drivers for the losses to financial institutions was loan and mortgage fraud, up from £59m in 2012 to £160m. Patel comments: What is clear from this year’s report is that fraud is on the up and remains a huge cost to government and the private sector.  It is a welcome development to see that the Government continues its fight against white collar crime.  A very severe punishment regime is being proposed in the sentencing guidelines consultation paper issued recently to tackle the growing scourge of white collar crime and the acknowledgement that the real cost of fraud is more than just financial.”

 

In line with overall national crime statistics, the data shows that fraud is overwhelmingly committed by men, with 86% of frauds in 2013 committed by men, and by people over 35 (responsible for 95% of frauds in 2013).  In this regard, the Fraud Barometer data echoes KPMG’s own research ‘Profile of a fraudster’ which found that 87% of frauds were committed by men and also that 87% of frauds were committed by those over 35.

 

Case studies:

 

  • [Supply chain fraud]: Primary schools, health centres and a charity for the homeless were just some of the victims of a £0.6 million supplier chain fraud recorded in the fraud barometer.  These organisations thought they were buying new photo-copying equipment but were in fact buying second-hand or substandard equipment - and then paying for their repair. Such losses affect organisations least able to bear the cost, diverting money away from charitable and welfare front line services.  This more run-of-the-mill fraud echoes other more high profile cases such as the fake bomb-detecting equipment sold to the Iraqi government,  the adulterated ’horse’ meat scandals affecting our supermarkets, or ‘contaminated’ baby milk in China that lead to global rationing .  These cases demonstrate that consequences of supply chain fraud are not just financial.

 

  • [Investor fraud]: Hundreds of investors sold on the promise of higher returns were duped out of tens of millions of pounds. Scams include a wine investment fraud where much of the investment wine was never purchased.  Another scam involved claims that an oil trading fund was worth over £10 million when in fact it had lost almost all its funds.  Other investors lost over £7 million when a foreign exchange dealer trusted with safeguarding their financial interests instead used their money to make spread bets that he subsequently lost.


Ends

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2008

H1

2008

H2

2009

H1

2009

H2

2010

H1

2010

H2

2011

H1

2011

H2

2012

H1

2012

H2

2013

H1

Fraud Value £m

631

471

637

678

609

765

1,068

2,480

374

450

516

No. of Cases

128

111

163

108

166

148

131

120

136

125

148

 

About KPMG

 

KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.

 

 

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