Reported fraud hits five-year high of £2bn

News by Roi Perez

Financial services sector sees a drop in number of fraud cases but fraud in public administration increases 200 percent.

Most fraud is now online and the total value of reported fraud in 2016 hit a five-year high, increasing 31.5 percent to £2 billion, according to new analysis by accountancy and business advisory firm BDO LLP.

Despite the hike, the latest BDO FraudTrack analysis, which examines reported fraud cases over £50,000 in the UK, finds that the number of reported cases fell slightly (504 in 2016 compared to 519 cases last year).

This means the average value of fraud rose 35.4 percent to a five-year high of £3.9 million.

Public administration was the industry sector with the highest level of reported fraud, accounting for £1.4 billion of the UK total. This has risen 204.7 percent from the £450.9 million reported in 2015, due in large part to a single £1 billion VAT ‘carousel fraud case involving a woman from York.

The volume of fraud in public administration also rose, climbing from 114 cases in 2015 to 150 cases in 2016.

With the public and regulatory spotlight continuing to scrutinise financial services ever more closely, both the volume and value of reported fraud in the sector fell during 2016.

The value of reported fraud in financial services fell more than 62.1 percent, from £567.2 million in 2015 to £214.9 million in 2016. The volume of reported fraud also fell, dropping from 70 cases in 2015 to 58 cases in 2016.

Within the sector, money laundering showed the biggest decrease in the value of fraud, falling from £201.6 million in 2015 to £98.9 million in 2016. The volume of cases, however, rose from 15 last year to 20 cases this year.

A key case involved a man arrested by City of London police on suspicion of money laundering. The arrest was made following the investigation of a UK bank account thought to be linked to an organised crime ring.

Mortgage fraud and third party fraud also showed a significant year on year decline both in terms of value and volume. Mortgage fraud fell from £151.1 million in 2015 (13 cases) to £54.8 million  in 2016 (4 cases), while third party fraud fell from £209.7 million  in 2015 (26 cases) to £47.6 million in 2016 (17 cases).

Kaley Crossthwaite, partner and head of fraud at BDO, commented: “It is extremely encouraging to see that the public and regulatory scrutiny within financial services is starting to gain some traction in reducing the volume and value of reported fraud. In particular, we have seen a marked decrease in the level of insurance fraud as firms in the sector adopt ever more stringent systems and controls to address fraud.

“Fraud in public administration shows a significant spike due in large part to a £1 billion single VAT ‘carousel' tax scam, however stripping this out the sector still shows a sharp increase in the volume of reported fraud, most of which involves various types of tax fraud.

“As with last year, the numbers have been skewed slightly due to a small number of very large cases. Removing these anomalies would show an apparent fall in both volume and value year-on-year. However, this would not give us the full picture. Many high value complex fraud cases continue to be dealt with outside of the judicial system as companies prefer to handle these situations privately to avoid the reputational damage to their businesses. Our experience would suggest that both volume and value in real terms continue to rise despite efforts by companies to strengthen their processes.”

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