Financial institutions across London and the South East were hit hard by fraudsters over the last 12 months with over £157 million being defrauded by criminals, an increase of 779% on last year. The total value of fraud prosecuted in the region in 2015 fell by 21% to over £380 million but still accounted for over half of all fraud taking place in the UK.
There was a marked increase in the value of frauds being committed by managers and employees which was up by 153% on 2014 figures. In one case a mother of two from Surrey stole £1.75 million from the family business that she worked for as bookkeeper. Unbeknownst to the business when they recruited her she had previously been convicted of benefits fraud and 10 counts of fraud against a former employer.
Chris Wheeler, Forensic Director for KPMG in the London Region said: “London and the South East remain fraud hotspots in the UK. In particular financial institutions have been hit hard this year. Fraudsters and criminal gangs see financial institutions as a series of processes that they need to overcome, but once penetrated the rewards can be bountiful. Whilst large organisations focus on regulatory efforts to combat financial crime at the front end, such as money laundering, the data shows vulnerability to old-fashioned back office fraud. The importance of employee screening and pre-employment due diligence measures cannot be understated.”
The value of fraud cases seen in the Midlands courts decreased by 28% in 2015 compared to 2014. With case value in 2014 amounting to £72m, there has been a significant fall to this year’s figure of £52m. Despite the fact that 2015 saw a slight increase in the total number of cases passing through the courts, from 34 to 37, the average value in 2015 was £1.4m compared to £2.1m in 2014. These declining figures in the Midlands buck the national trend, where both total fraud and average case values have risen.
However, the Midlands has seen some fraud hotspots in 2015, with one being a 500% increase in the value of fraud committed by women, up from £410,000 in 2014 to £2.5m in 2015. This £2.5m was split across eight individual cases, rather than the two perpetrated by women in 2014.
Investor fraud increased substantially year on year in the Midlands, with it rising from just £390,000 in the previous year to a huge £23m in 2015. However, looking behind the statistics, this was due to two very significant cases: a £14m fraud perpetrated by two directors misusing funds from a group of investment companies; and a £9m fraud in which three men conned more than 100 people out of their savings. Employee fraud was the other notable area of increase, with a 225% increase in fraud value from £2m to £6.6m, although again this was mainly due to a particularly sizable fraud, in this case of £4.4m.
Simon Albrighton, Forensic Partner at KPMG in the Midlands, said: “The decline in fraud cases in the Midlands shows that both businesses and individuals are becoming savvier when it comes to the machinations of those who set out to defraud others. The fact that we are bucking the national trend is a good sign for the region, and indicates a welcome increase in awareness, understanding and vigilance. However, instances of fraud are by no means a thing of the past - £52 million is still a huge figure; with people still carrying out frauds against both businesses and individuals, the need for us all to be on our guard is still very much in evidence.”
The value of fraud across the North East rose by 746% in 2015 to £139.4m (from £16.5m in 2014). This figure represents the highest rise across the UK and is dominated by one £111m case. While case value rose dramatically, the number of cases across the region fell by 27%. Only 16 fraud cases appeared before the North East courts in 2015, compared to 22 in the previous year. Of these, there was a significant reduction in the volume of low-value (<£1m) crimes, which dropped by 40%.
Sara Smith, Senior Manager, KPMG Forensic in the North East, said: “Despite a reduction in the number of cases across the region, the latest KPMG Fraud Barometer shines a spotlight on the impact of ‘super’ frauds. Many business owners fall victim to unscrupulous employees and if business owners do not keep a rigorous check on a firm’s finances, such people will continue to exploit their position until caught. Despite the number of cases falling overall, the prominence of high-value cases casts a stark warning to those in charge and highlights the importance of ensuring a business is well-protected.”
A landmark case has pushed up the average value of frauds in Yorkshire to £1.9m over the last 12 months. The number of cases in the county fell by 37 per cent from 38 counts in 2014 to 24 in 2015.
The total value of fraud offences in local courts reached £45.8m – a rise of 29 per cent over the 12 month period from £35.4m. However, the statistics were skewed by a landmark £30m case earlier in the year at York Crown Court that heard how fraudsters mimicked government websites and tricked people into paying for services. Discounting the case, average fraud declined by 29 per cent from more than £932,000 to £660,000.
Vivien Hopkins, Forensic Director at KPMG in Yorkshire, said: “While it is pleasing to see that underlying average fraud values in Yorkshire have declined, the cases brought to court in 2015 show that there are people out there willing to abuse their positions of responsibility and trust for their own financial gain and take advantage of the most vulnerable in society.”
Fraud against commercial businesses increased by over 50 percent in the region, despite a fall in overall cases the total value of fraud committed reached £43.6m in 2015 in the North West.
Fraud from commercial businesses rose by 56 per cent during the year from £5.6m to £8.8m, while government organisations were victim to a 49 per cent rise in fraud value to £23.8m. People in management positions were responsible for the most cases in the region, with their share of fraud increasing by 80 per cent over the past 12 months.
Graham Cochran, Forensic Director at KPMG in the North West, said “It is clear that while businesses, banks and public sector organisations in the region have made great steps to protecting themselves in recent years, there will always be people that try to abuse their position of trust and responsibility. Our research highlights the significant increase in the frauds perpetrated by people in management positions and organisations should remain vigilant and not rule out the risk of fraud being performed by senior trusted members of the team.”
High value fraud in Scotland has fallen from £8.6m in 2014 to £4.7m in 2015 (46%) with the number of fraud cases also down slightly from 13 to 12 (8%) following a similar decline between 2013 and 2014. In the last six months of 2015 there were only three cases coming to courts in Scotland, compared to nine cases between January and June.
However, although the overall number of cases and value of fraud has fallen, the volume of cases committed by employees and management against their own employers, increased by 83% from six in 2014 to 11 in 2015, with the Scottish public sector being particularly hard hit – losing £2m in 2015 compared to less than £700,000 in 2014. Fraud committed by customers against businesses in Scotland dropped from five cases in 2014 to zero in 2015. Ten of the 12 reported cases carried out were by those aged 36 - 55 years old.
Ken Milliken, Head of Forensic for KPMG in Scotland said: “The second six months of 2015 have a seen a fall in the value and the number of fraud cases coming to court in Scotland. However, the insider threat remains, with fraud by management and employees on the rise. We report on the high value cases which have come to court. We know from our work with organisations across all industries that there are many more instances of insider fraud and embezzlement. Organisations, particularly within the public sector, need to look at their own internal processes to make sure that opportunistic staff of all levels cannot exploit security gaps. This is not just a Scottish problem, with the public sector across the UK also suffering. Having strong fraud policies is not enough. More needs to be done by all organisations to truly understand the risks of fraud and to address those specific risks. The threat may not be where you expect it to be.”
Losses in 2015 were highest among vulnerable individuals duped into false investment schemes. The number of these cases has more than doubled in the South West, leading to £5m losses for investors. In Wales meanwhile, having seen no cases in 2014, two cases were reported in 2015 leading to a loss of some £6m for investors.
The number of fraud cases in the South West has fallen (from 33 in 2014 to 24 in 2015). Similarly, the value of fraud prosecuted in the South West decreased to £11.3m (from £34m in 2014). However, discounting the single investment scheme loss of £21m in 2014, there has only been a slight decrease in the value of fraud. Despite the overall decrease, there has been an increase in fraudulent activity among middle aged men in the South West, with fraud being perpetrated by those in the 46-55 age group increasing 40% on 2014 to £3.8m.
The number of fraud cases in Wales has remained broadly static whereas the value of fraud has decreased (from £16m in 2014 to £10m in 2015). However, in Wales the number of frauds perpetrated by managers of businesses has more than tripled from two cases in 2014 to seven cases in 2015. These individuals were responsible for half of the fraud cases this year in Wales.
Akhlaq Ahmed, KPMG’s Forensic Director for the South West and Wales, said: “It’s interesting to see that the South West and Wales has bucked the national trend this year, with the value of fraud falling slightly in the region. But that doesn’t hide the shocking trend for the financially vulnerable being tricked into investing their money in fraudulent investment schemes. There has been a marked drop in individuals under 26 conducting fraud, with many being victim to the middle-aged white-collar criminal and those with trusted positions in society. Management continue to be a significant perpetrator of frauds, some abusing their trusted position as figureheads of business by duping investors into fraudulent investments.”