South East: Fraud increases 38% to over £0.5b but real cost is human misery, says KPMG

Fraud cases totalling over £0.5 billion were recorded in the first half of 2013, up over a quarter on the previous year, according to KPMG’s latest ‘Fraud barometer’, but a more sinister theme has played out this year with professional criminals becoming the biggest perpetrators – responsible for frauds totalling some £290 million, up from £110m in 2012. One of the key drivers for this has been supply chain frauds worth £61m (up from less than £1m in 2012). In addition to financial cost, these cause human harm. 

In the South East, the number of fraud cases coming to court in the first half of 2013 stood at 62, up just one case on the same period in 2012. The value of fraud in the region was down with £207m recorded from January to June 2013, against £285m in the same period for 2012. However, the region remained the fraud hotspot of the UK, accounting for 42% of all cases recorded in the UK and 40% of the total value of UK fraud recorded in the first half of this year.

Commenting on the figures, David Higginson, forensic director for KPMG’s South East office, said: “While the back end of last year saw a resurgence of traditional con artistry, this year has seen fraud cases turn a darker corner with professional criminals acting across borders for the purpose of defrauding largely governments and financial institutions.”

Fraudulent activity by professional criminals accounted for over half of the cases which came to court in the South East region so far this year, with a value of over £145m.

“Procurement fraud continues to be an issue and although procurement functions seek to do relevant due diligence checks on potential suppliers, fraudsters are increasingly getting smarter at circumventing traditional procurement processes and controls. Organisations need to make the most of the numerous data sources available and overlay that with the information they have on a third party they plan to do business with. Joining up the data and information dots is a key tool in building a more informed picture to prevent risks crystallising to such an extent that it causes damage to consumers and organisations.”

In one case, a finance manager at an intergovernmental agency was jailed for three years and eight months after stealing £375,000 of aid money with bogus expense claims and fake contracts. The man became addicted to gambling after a trip to Las Vegas in 2006. The money he stole had been destined for "some of the poorest nations on Earth", Southwark Crown Court was told.

Fraud committed against investors also saw a huge increase in 2013, with frauds totalling £74m coming to court, £56m of which took place in the South East region.

Higginson continued: “We can really see the manifestation of pressure on the family purse in the increase in honest investors defrauded. With pensions, traditional investments and incomes squeezed at the same time as inflationary pressures driving up costs, people are feeling compelled to seek alternative ways of growing their savings to maintain lifestyles. Unfortunately the public is vulnerable to Ponzi schemes dressed up as legitimate investment opportunities in the form of oil trading, wine clubs and property investments, which really are too good to be true. We note that the Financial Conduct Authority is moving to regulate alternative asset classes which may mitigate the problem but the public should still be alive to the threat of investment scams.”

The latest data shows that governments and financial institutions are really bearing the brunt of the cost of fraud in the UK with £405m suffered in 2013 compared with £271m in 2012. One of the main drivers for the losses to financial institutions was loan and mortgage fraud, up from £59m in 2012 to £160m.

In line with overall national crime statistics, the data shows that fraud is overwhelmingly committed by men, with 86% of frauds in 2013 committed by men, and by people over 35 (responsible for 95% of frauds in 2013). In this regard, the Fraud Barometer data echoes KPMG’s own research ‘Profile of a fraudster’ which found that 87% of frauds were committed by men and also that 87% of frauds were committed by those over 35.