Record fraud in 2009 closes out the ''naughty Noughties''
The 2000s were a decade of fraud, according to KPMG Forensic''s Fraud Barometer, reaching a peak in 2009 when a record 1.3bn of cases came to court.
This is the highest figure since KPMG began compiling data back in 1987. Taken together, the 2000s saw a major uplift in serious fraud cases compared to the 1990s - some 1750 cases of serious fraud (where the charges are at a value of 100,000 or more) came to court, compared to only 700 cases in the 1990s. Over 7bn of fraud was heard in Britain''s courts in the ''Noughties'', compared to less than 5bn in the 1990s.
Hitesh Patel, partner at KPMG Forensic, said: "Britain appears to have a rising fraud problem, as is evident by looking at the steady increase through the last ten years. The last decade, I am afraid, could certainly be dubbed the ''naughty Noughties''. The credit crunch will undoubtedly make the situation worse, and we are yet to see the full impact of it. The forecast therefore is: getting worse. The comfort, if there is any, is that more fraud cases are successfully being brought to court. This is the result of a combination of factors: companies have become better attuned to the signs of fraud; there has been a greater focus on corporate governance; and new laws and regulations to combat fraud have been introduced. Nevertheless, what we see remains only the tip of the iceberg. Despite the great efforts made to tackle white collar crime, companies will need to remain vigilant as the problem will never be eradicated. Fraudsters will only get more sophisticated."
The 2009 figures continue a trend of historically high fraud levels that has been especially evident since 2005 (see attached chart). The last five years have seen a particularly worrying step-change where annual fraud has been at or near 1bn with 200 cases or more.
The 2000s were also characterised by a series of global fraud ''super-cases'' - though none of these have to date occurred in the UK. The alleged frauds by individuals such as Bernard Madoff, Allen Stanford and Jerome Kerviel have run into the billions in their estimated value.
"Over the last ten years, the boom in technology has acted as a catalyst for a boom in fraud," Hitesh Patel said. "Computerisation and globalisation have made fraud easier, quicker to carry out and easier to conceal. Organised criminals in particular have taken advantage of this. Identity theft is a continual problem, alongside more ''traditional'' frauds including insider trading and price-fixing cartels. The authorities in turn have sought to professionalise the fight against fraud in response."
2009: management in the dock
2009 saw the highest number of cases of serious fraud by managers and employees (123) since the Fraud Barometer began. There was a major increase in fraud by company managers coming to court, with 335m of cases compared to 129m in 2008. Employees also racked up far higher losses, with cases worth 232m, more than double the 100m figure for 2008. The biggest perpetrators of fraud were organised criminals, however, with 719m of fraud, though this was down somewhat from 2008 when they accounted for over 800m.
The hardest hit sector was the Government and public sector organisations, who suffered frauds to the value of 476m - mainly in the form of tax and benefit fraud - more than double the 207m figure for 2008. Financial institutions remained a major target, with cases worth nearly 396m, slightly up from 388m the previous year.
Mortgage fraud doubles
Mortgage fraud continued its steady rise in 2009. There were 31 cases worth 77m in the year, compared to 10 cases worth just 3.7m in 2007 and 25 cases worth 36m in 2008. Some cases involved organised rings, such as one case of alleged commercial mortgage fraud in which six people were charged with selling properties between one another in a number of back-to-back deals at inflated prices. Others involved individual applicants, such as one North East man who was charged with 16 different offences relating to mortgage loan application fraud, totalling over 700,000. KPMG predicts that increasing amounts of mortgage fraud will come to light in the wake of the end of the property boom and as lenders increasingly scrutinise their mortgage books and reclassify their mortgage asset portfolios.
There were many cases of fraud within accounting and book-keeping departments - 33 cases worth a collective 44m came to court in 2009. Many of the fraudsters had worked for their victims for years and were well trusted by their employers. Such trust had led to the relaxing of controls and oversight - a very expensive mistake. Several cases involved people with prior convictions, such as the accountant at a Birmingham-based property management company who took more than 350,000 from his employers by transferring money from clients into accounts in his own name. He in fact already had a history of committing theft and deception under a different name.
Hitesh Patel commented: "It is essential for companies to rigorously screen potential employees and carry out proper background checks. Knowing who you employ and the extent of any risk they pose to the organisation is a key line of fraud defence."
One case in 2009 should act as a warning ahead of the London Olympics in 2012. An alleged 5m racket involved selling non-existent Beijing Olympics tickets (and other sporting events) online. KPMG advises that buyers should make sure of the credentials of anyone purporting to sell 2012 Olympics tickets - not least because none of them have gone on sale yet.
Print your own
One man took the direct route to profit from fraud - by printing his own bank notes. The Scottish IT professional printed around 185,000 in fake notes and involved two of his sons in the scheme. When caught, he reportedly claimed that he was undertaking a business venture to create a bank note that could not be copied. But he was found guilty and jailed for over five years.