There was 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, with frauds being committed by professional criminals and employees in the region 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. There was a 64% increase in the amount of fraud being conducted by professional criminals in the first half of the year when compared to 2015.
“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.”
Chris Wheeler, Forensic Director for KPMG in the London Region
The value of fraud cases prosecuted in the Midlands courts saw a fourfold increase in the first half of 2016 compared to 2015. With a total value for the last six months of £139m, cases in the Midlands account for 42% of the total value of fraud in the UK, surpassing all other regions including London. Despite the fact that the first six months of 2016 saw a decrease in the number of cases passing through the courts, from 19 to 12, there has been a significant increase to the value, compared to last year’s £32m. The increase in value of fraud cases in the Midlands goes against the national trend, where both total fraud and average case values have fallen. The Midlands has seen a shift in the types of alleged fraud committed in comparison with the first half of 2015, with government organisations the main victim in 2016.
A notable area of increase was that people in management positions were responsible for the majority of cases in the Midlands, with their share of alleged fraud increasing to 58% for the first six months of this year. The statistics also showed a noticeable change in the number of employees committing fraud, which accounted for 26% of cases in the first six months of 2015, but none this year.
“The fact that the number of cases has decreased this year is positive news. However, given that the value of fraud in the Midlands has increased substantially, it is clear that organisations must continue increasing awareness, as fraudsters seek out new and unconventional ways to operate. Our research highlights a significant increase in frauds perpetrated by people in management positions. While businesses, banks and public sector organisations have taken steps to protect themselves in recent years, there will always be people in positions of authority that try to abuse the responsibility entrusted to them. Businesses need to ensure that effective anti-fraud controls are in place and applicable to all staff, regardless of their position. This is even more crucial following the Brexit vote, as uncertainty provides the perfect ecosystem for fraudsters to exploit people’s vulnerabilities.”
Julie Bruce, Forensic Director at KPMG in the Midlands
The value of fraudulent activity in the North East has increased by 12% to £13.3m in the first half of 2016, as have the number of cases with an increase of 50% compared to the same period last year.
The value of frauds committed by professional criminals in the region has increased dramatically, from £460,000 to £1.6m. This correlates with the national picture, which sees professional criminal perpetrators increasing the amount of cash they acquire by unlawful means.
In a similar vein, employees across the region continue to take advantage of their employers. While the number of fraud cases involving employees is consistent year-on-year, the value has almost doubled from £274,000 to £527,000.
However, the value of offences committed remained highest among management. Those in positions of authority were responsible for £8.1m of fraud, despite a 27% fall on the corresponding period in 2015.
“Both the value and frequency of frauds is increasing in the North East, which is worrying. It is also a concern that professional criminals appear to be targeting the region and that management teams remain responsible for a significant portion of fraud. This is a clear indication that business owners need to be vigilant when it comes to keeping an eye on potential fraudulent activity within their own organisations. By taking their eye off the ball, the region’s businesses could fall victim to unscrupulous employees abusing their position of power, or even from professional fraudsters, and it’s vital that the appropriate measures of fraud prevention are put in place to mitigate this risk.”
Sara Smith, Senior Manager, KPMG Forensic in the North East
The value of prosecuted fraud in the North West fell to £13.5m in the first half of 2016, down from £16.8m in the same period last year. Despite an overall reduction in the number of cases, the value of fraud committed by professional criminals rose by 26% to £9.6m, suggesting fraudulent attacks are becoming more organised.
Professional criminals remain the most common perpetrators of fraud offences in the region, while the second most common perpetrators are employees and people in management positions.
“While it’s positive to see a decrease in the number and value of fraud cases coming through the region’s courts, we cannot rest on our laurels. Fraudsters, particularly those operating professionally, are becoming increasingly sophisticated in their methods and this reinforces the importance of robust fraud detection systems. It’s also worth noting that fraudulent activity from employees and people in management still represents a large percentage of fraud in the region, making it essential that business owners maintain control and keep a close eye on those in a position of power, particularly if they have access to the finances of a business.”
Graham Cochran, Forensic Director at KPMG in the North West
Losses in the South West are up for the first half of 2016. Fraud has increased by 16% to £8.2m compared to £7m last year. The perpetrators and type of fraud being carried out in the region also reveals a very different picture to last year. There has been an increase in younger professional fraudsters, aged between 26 and 35 perpetrating the fraud. The value of fraud perpetrated by professional criminals has almost doubled to £7.4m compared to £3.9m last year.
Vulnerable investors are again the primary target for fraud so far this year, with just under £5m losses this year. Last year there were no recorded losses against financial institutions, but the value of fraud against companies in this sector in now at £1.2m so far this year.
Fraud against government and commercial businesses has dropped by 100% and 88% respectively, unlike the national picture, where value of fraud against these sectors actually increased.
“It’s interesting to see that the South West has bucked the national trend so far this year with fraud rising in the region. The South West has also seen very different perpetrators and victims to the national picture. We are seeing the shocking trend for criminals duping the financially vulnerable into false investment schemes continue into this year in the region. What’s new for the South West is the type of organisation being hit. While government and commercial businesses are seeing less fraud perpetrated against them, financial institutions, like banks, have entered into the mix. It seems that much of the fraudulent activity in the South West is being carried out by those in trusted positions in society, and both vulnerable individuals and finance managers should be on the lookout for unexpected fraudsters.”
Akhlaq Ahmed, KPMG’s Forensic Director for the South West
Losses in Wales are down by almost half for the first half of 2016 with fraud decreasing by 44% to £1.2m in the region. However, losses to financial institutions are up by 29% to £0.9m.
While professional criminals and white collar criminals were the main perpetrators last year, no cases arising from this group occurred in the current period. Instead the main perpetrator in Wales this year is the customer. The value of fraud perpetrated by customers increased to just under £1m.
The perpetrators and type of fraud being carried out in the region also reveals a very different picture to last year. The typical fraudster so far this year is a male, aged 36-45; a change from last years’ male and female fraudsters aged between 46 and 55.
No fraud cases against government and commercial businesses have been recorded in Wales in the first half of the year, unlike the national picture, where value of fraud against these sectors actually increased.
“It’s interesting to see the rise of fraud by customers in Wales. We’re no longer seeing the trusted white-collar criminal carrying out the fraud, and instead financial institutions, like banks, are having the wool pulled over their eyes by their clients.”
Akhlaq Ahmed, KPMG’s Forensic Director for Wales
Fraudulent activity in Yorkshire has fallen in the first half of 2016, when compared to the corresponding period last year, by more than a third (37%).
In addition, we have seen an 84% year-on-year decrease in the value of fraudulent activity passing through the region’s courts in the first half of 2016, down from £41m in H1 2015.
However, last year’s figures were skewed by a sizeable £30m fraud at York Crown Court involving websites mimicking official government sites and tricking people into unnecessarily paying for services. Discounting the case as an anomaly, the value of frauds still fell from £11m to £6.4m. Incidents of fraud committed by professional criminals and by management teams both halved year-on-year for the period.
“Yorkshire appears to have got tough on fraud and has helped see a decline in activity – possibly due to a greater awareness of the crime and better understanding of how to detect and prevent offences. However, there are still many businesses and vulnerable people suffering from fraud across the region and we must not become complacent.”
Vivien Hopkins, Forensic Director at KPMG in Leeds, Yorkshire