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  • BDO FraudTrack analysis 2019

Value of fraud more than halves in 2018 from record 15-year high

25 February 2019

Research carried out as part of BDO LLP’s annual FraudTrack report has found that the total value of fraud in the UK more than halved in 2018, following a record 15-year high in 2017, down from £2.1bn to £746.3m.

  • Total value of fraud has fallen 64.7% to £746.3m in the last year from a record high of £2.1bn in 2017.
  • Volume of reported fraud remains stagnant with a slight decrease of 9% to 525, down from 577 cases in 2017.
  • Experts warn full scale of financial loss could be much higher with only one in 50 cases of fraud being reported.

The analysis, which examines reported fraud cases over £50,000 in the UK, reveals that despite the dramatic drop in value the number of reported fraud cases has remained broadly in line with the previous year, decreasing 9% from 577 to 525.

Accountants and business advisers BDO found that the average value of fraud has fallen to £1.4m, down from £3.7m in 2018. 

Kaley Crossthwaite, Partner and Head of Fraud at BDO, commented: “Fraudulent activity cost the UK almost £750m last year. Although significantly less than the record-high levels of 2017, individuals and businesses are still paying a high price for criminal activity that can often be avoided with better controls and governance procedures in place.

“While the fight against fraud appears to have strengthened, our experience suggests that as few as 1 in 50 cases of fraud in the UK is likely to be reported. These figures therefore only shine a spotlight on the visible part of a much wider problem. The true cost of fraud could be as high as £37.5bn per year, based on average fraud values found in our research. Increasingly we are seeing high-value complex fraud being dealt with outside the judicial system as companies prefer to deal with these situations behind closed doors to avoid reputational damage.

“The chink in the armour for most UK companies continues to be its people. With third-party and employee fraud making up two of the top five types of frauds by value, there needs to be greater controls and monitoring of who has access to critical information within a business. This, alongside improved education and retraining of workforces, is vital.”

Sector peaks and troughs

In the last year, the manufacturing sector has witnessed the largest increase in the value of fraud as the total rocketed by 1014% to £22.8m and the total number of recorded cases rose by 37.5%. Another dramatic increase in 2018 occurred in the utilities sector, with the value of fraud rising over 1400% to £9.3m, up from just below £618,000 in 2017, despite the number of reported cases dropping by a third.

Some of the other most notable changes over the last year included a dramatic increase in value across charity and construction sectors, which grew by 135% and 223% respectively to £20m and £8.3m.

Regional hotspots

London and the South East remains the biggest hotspot for fraud in 2018, accounting for over 60% of all recorded fraud in the UK, with the number of cases remaining the same, while the total value decreased by 70.7% to £476m.

One notable fraud in London involved the wife of the high-profile fraudster, Jahangir Hajiyev, the former chairman of the International Bank of Azerbaijan who was jailed in 2016 for embezzling billions from the bank. Mrs Hajiyev, whose lavish lifestyle included spending more than £16m in Harrods, was arrested and faces two charges of embezzlement. This was the first case of an unexplained wealth order in the UK.

Yorkshire took over from the West Midlands in 2018 as the largest hotspot for fraudsters outside London, with a 51.2% increase to £52m. This large increase was due in part to a significant jump in the value of third-party fraud (315.6%) in Yorkshire with the average value increasing by 51.2% to £1.3m up from £860k. One of the more notable cases of third party fraud was a £10m case involving money laundering through the resale of tickets for gigs and events.

Sat Plaha, Partner and National Head of Regional Forensic Services at BDO, stated: “While London continues to remain the epicentre of fraud in the UK, we’ve seen the most dramatic increases in East Anglia, the West Country and the Scotland by 302.8%, 198% and 88% respectively. As resources for tackling fraud come under increasing pressure from all sides, these changes emphasise the acute challenges faced by corporates outside of London and the urgent need to direct greater resources to areas other than the capital.”

Greed continues to be core driver of fraud

Greed remains the greatest driver of fraud across the UK, where the motive is known, with 46% of cases stemming from human avarice and the total value accounting for 76.6% of recorded fraud with known motive. After greed, from a cost perspective, gambling and health/depression were the greatest contributors with a value of £24m and £16m.  

There has also been an astronomical increase in unauthorised use/misuse of assets fraud, with the value up 57185% in 2018 to £115.1m, and the number of cases up 1750% from 2 to 37.

In one case, two brothers from Norfolk, defrauded more than 200 victims out of almost £17m, fraudulently producing client records to persuade their clients, who were often elderly and vulnerable, to sign them in order to gain access to their pension funds. Without the clients’ knowledge, they then transferred the money to another company they owned and placed them in a high-risk finance scheme.

The increasing need for cross-border collaboration

In the last year, the UK benefitted from cross-border collaboration in several cases. One of the UK’s most wanted tax fugitives, who escaped to Ireland 12 years ago, was tracked down in Ireland by specialist HMRC officers. Separately, the perpetrator of a £9.8 million international VAT fraud involving a complex trading chain with companies in the UK, Gibraltar, Spain and the US was jailed.

Kaley Crossthwaite, added: “Fraud is complex and rarely about one issue. In many cases it’s not even perpetrated by one individual or within a singular jurisdiction. In this turbulent and uncertain time in UK/EU relations, the need to work together to bring fraudsters to justice must remain a high priority.”

Sector breakdown

The five industry1 sectors with the highest level of reported fraud in 2018 are:

 Sector  Total value of fraud 2018 (£m) Total value of   fraud 2017 (£m) % increase/(decrease)in value of fraud   Total number of fraud cases 2018   Total number of fraud cases 2017 % increase/(decrease)  in number of fraud  cases
Public Administration 168.1 368.5 (54.4%)  155 147 5.4%
Finance and Insurance 134.4 899.7 (85.1%) 65 100 (35%)
 Retail Trade 59.7 337.3 (82.3%) 31 29 6.9%
Mining 46.6 - N/A 4 - N/A
Manufacturing 22.8   2.0 1014.3% 11 8 37.5%

1Excluding non-corporate fraud

 

Types of fraudulent activity

The five most common types of fraud in 2018 were:

Fraud type   Total value of fraud 2018 (£m)     Total value of fraud 2017 (£m)  % increase/(decrease) in value of fraud     Total number of fraud cases 2018 Total number of fraud cases 2017        % increase/(decrease) in number of fraud cases 
Third party fraud (suppliers, customers) 181.3 261.7 (30.7%) 125 116 7.8%
Tax fraud 133.7 351.8 (62%) 121 130 (6.9%)
Unauthorised use/misuse of assets 115.1 0.2 57184.5% 37 2 1750%
Money laundering 83.4 341.6 (75.6%) 18 42 (57.1%)
Corruption 56 295.5 (81.1%) 6 5 20%

 

Regional breakdown

The following shows a regional breakdown of fraud in 2018 from those with the highest levels of fraud by total value to the lowest:

Region

Total value of fraud 2018 (£m)

Total value of fraud 2017 (£m)

% increase/(decrease) in value of fraud

Total number of fraud cases 2018

Total number of fraud cases 2017

% increase/(decrease) in number of fraud cases

London & South East

475.9

1,625.6

(70.7%)

176

176

0%

Yorkshire

52.0

34.4

51.2%

40

40

0%

North West

51.9

115.7

(55.1%)

55

69

(20.3%)

Scotland

30.4

16.2

88%

43

50

(14%)

West Country

26.3

8.8

198%

36

30

20%

West Midlands

22.3

203.2

(89.0%)

63

71

(11.3)%

East Anglia

19.6

4.9

302.8%

10

12

(16.7%)

East Midlands

18.9

16.9

11.7%

29

35

(17.1%)

North East

18.7

22.0

(15)%

26

37

(29.7%)

Northern Ireland

13.7

24.2

(43.5%)

17

24

(29.2%)

Wales

13.6

16.0

(15.1%)

29

28

3.6%

National

3.0

26.6

(88.7%)

1

4

(75.0%)

Total

746.3

2,114.6

(62.5%)

525

577

(9%)

 

- Ends -

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