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, says:
“While 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.