The cases had a total value of £636m which, if replicated in the second half of the year, would also lead to the highest value of fraud in the Barometer’s history (currently £1.2bn in 1995).
Professional gangs were the most active perpetrators of fraud, with 70 cases worth some £450m, and their main victims were investors, who suffered to the tune of £320m. Much of this stemmed from a £200m investment fraud case involving the attempted fraudulent sale of the Ritz hotel in London. Company managers were also active perpetrators, responsible for £150m of fraud against their own employers in 32 cases. Government suffered £150m of fraud, mostly in the form of tax and duty evasion and fraudulent benefit claims. The main victim in terms of number of cases was the financial sector. Over a quarter of fraud cases (44) were against financial institutions, with a value of £111m.
Commenting on the figures, Hitesh Patel, partner at KPMG Forensic, said: “These figures are bad, but the worst is yet to come. It will be a number of years before the impact of the recession fully feeds through into the fraud statistics. Hard times mean more people driven to fraud by personal pressures, and more investors willing to believe in cooked up investment schemes. Companies too remain vulnerable to the threat within – their staff - as evidenced by the £150m of fraud that managers have been tried for in the last six months alone.”
Property frauds
Property was at the heart of much fraud. In addition to the £200m Ritz hotel case, a large buy-to-let fraud in the North East conned as many as 2,000 investors out of £80m, investing in properties which often turned out to be little more than derelict shells. Mortgage fraud – either by individual customers or organised professionals - also continued its gradual but steady rise in the courts. There were 18 cases with a combined value of £24m in the first half of the year, compared to 25 cases worth £36m in the whole of 2008. KPMG expects that the rise in mortgage frauds being uncovered will continue as the recession plays out.
The management of fraud
The insider threat to companies and organisations remains prevalent, with managers and employees together accounting for over a third of cases (63 between them). However, it is managers that are able to inflict far greater damage due to their positions of influence, with their 32 cases amounting to £150m of fraud compared to employees who in 31 cases cost their employers only £24m.
Determined and fraudulent managers continue to get away with their crimes over extended periods, such as the managing director of a Hartlepool-based food product company who siphoned some £2.5m over a 12 year period out of company accounts. A charity finance manager in Manchester paid herself nearly half a million pounds over the course of a decade by creating fictitious invoices and processing bogus payments.
But some more lowly employees also pulled off audacious frauds, such as a construction company secretary in Merseyside who claimed she had cancer so that she could take compassionate leave from work – during which time she treated herself to plastic surgery and holidays with some of the £600,000 she had taken from the company and a previous employer by paying wages into her own account.
Making it up
One social worker in the North West made up an entire children’s home called Cherrywood which did not in fact exist. She authorised payments for the home and its ‘staff’ into her own bank account, taking over £600,000 of public funds over a period of five years.
Hitesh Patel of KPMG Forensic concluded: “Britain’s fraud problem remains a serious one. The authorities have become very active in the fight against fraud, but it is especially challenging in times of recession. It is important that, given the huge media profile of some ‘super-cases’ such as Madoff, we do not become desensitised to the seriousness of all fraud. Even ‘small’ cases can cause extreme stress and suffering to those involved, and create major reputational and financial difficulties for the companies and individuals caught up in them.”
