The research, published as KPMG Forensic’s Fraud Barometer, counts major fraud cases being heard in the UK (charges of over £100,000 in the Crown Court). It saw 222 cases reaching court over the course of 2005, up from 174 cases in 2004.
The past six months have seen an explosion of fraud case prosecutions, many of them high value. Whilst there were 88 cases worth £249 million in the first six months of 2005, this shot up to 134 cases worth £693 million in the second half of the year. One case, involving fraudulently acquired loans by metals trading company RBG Resources plc, was worth some £260 million alone.
The Government remains the main victim of fraud (£447 million), largely through attempts at tax evasion, VAT and benefits fraud, while fraud against financial institutions – card fraud, identity fraud, false cheques – has spiralled dramatically, up from £37 million in 2004 to £360 million in 2005.
A little under half of fraud was carried out by professional gangs (£420 million), but even more was the result of ‘insider’ fraud by management or company employees (£468 million). The bulk of this was fraud by individuals at management level – such as the medical centre practice manager who awarded himself some £400,000 in extra salary payments over a period of seven years.
Jeremy Outen, partner at KPMG Forensic, said:
“There has been a worrying boom in fraud in recent months, although the good news is that we know this because the fraudsters are being successfully brought to book. Criminal gangs appear to be very active with aggressive stings, while in the private sphere internal frauds to fund excessive lifestyles or to pay off burgeoning debts shows no sign of abating. With both the number and the average value of frauds increasing, companies and individuals need to be more watchful than ever.”
The year has been notable for the number of carousel or VAT fraud prosecutions, involving high cost highly portable items such as mobile phones and computer chips. Two of the biggest cases, both involving mobile phones, were worth £58 million and £40 million respectively. Money laundering cases have also been prominent, commonly for laundering drug money. One of the largest cases, in the South East, saw the perpetrator jailed for four years for laundering £12.5 million worth of drugs cash.
Other cases against financial institutions include instances of an employee feeding information or sending funds to outside accomplices. Two such cases in the last sixth months were between them worth nearly £1 million. The issue of employees placed or groomed by criminal gangs is one that has been flagged in recent months by the Financial Services Authority.
Identity fraud continues to be rife, as fraudsters seek ways around the tighter controls introduced by such measures as chip and PIN. Phishing scams on the internet are a common way of obtaining people’s identities and bank details, such as one scam where nearly £200,000 was stolen from 160 people who were fooled by a bogus eBay auction site. In another internet scam, a man pretending to be an official internet registrar ‘sold’ businesses and individuals fake internet domain names and addresses to the tune of £1.5 million – all from the comfort of his own bedroom.
Other ID frauds have been more bizarre, such as the ex-horseshoe fitter who posed as a pioneering biochemist with a new process for making soap, who successfully swindled businesses and local authorities out of £60,000 in grants and loans, and nearly got away with £140,000 more.
As well as debt or greed, much individual fraud is motivated by addiction, commonly alcoholism or gambling habits. But some are motivated by more peculiar obsessions, such as the town hall cashier in Lincolnshire who stole over £550,000 in car parking fees to fund her Elvis Presley obsession. Spending a fortune on rare Elvis memorabilia and recordings, she went undetected for nearly a decade.
Jeremy Outen said: “All too often, insider frauds are conducted over a period of months or even years without anybody noticing. It is often the most unassuming or trusted person that is perpetrating a fraud. Indeed, it is getting into a position of trust that can create the opportunity and temptation to steal in the first place."
He called for companies to review their internal controls processes where appropriate, and make more use of some of the extremely sophisticated fraud detection software packages that have been developed. "These can help identify anomalies in a company’s data flow and email traffic that could be the possible indicators of fraud,” he said.
Fraud committed in 2005 is the highest since 1995 (£1.2 billion) and the second highest recorded since KPMG Forensic’s Fraud Barometer began back in 1990.