Total value of reported fraud in the UK breaches the £2 billion mark

Fraud in Britain has risen by more than 500% over the last 15 years, while the latest data available has revealed a 6% increase in major scams over the course of 2017. Financial services saw the largest sectoral glut of fraudulent activity, meanwhile, boasting a bill of just under £900 million.

In 2016, the total value of reported fraud hit a five-year high, increasing 31.5% to just under £2 billion. The spike came in spite of the number of reported cases falling slightly from 519 in 2015 to 504 in 2016, as the average value of fraud cases rose 35.4% to a five-year high of £3.9 million. Now, BDO’s annual FraudTrack figures have shown that while the rapid expansion in the value of fraud has slowed, it still increased at an alarming rate in 2017. The yearly report, which examines fraud cases over £50,000 in the UK, found that the volume and value of fraud in the UK have hit substantial highs, particularly when compared to the statistics of the last 15 years.

In 2017, 577 cases of major fraud were reported, up from the previously mentioned figures from 2015 and 2016, and dwarfing the figure of 212 in 2003, constituting a 172% increase. The total value of fraud has, meanwhile, seen a boost of 538% over the same 15 year period, hitting a grand total of £2.11 billion in 2017 – a 6.5% leap above the previous year’s reported £1.99 billion tally.

Financial service scams

Of the fraud cases reported over 2017, the financial services sector witnessed the largest increase in activity, with the total number of cases rocketing up by more than 72%. At the same time, value of fraud in the sector shot up by over 318%, hitting £899.7 million. As numerous landmark legislative changes, including the infamous GDPR, approach in 2018, the sudden spike in fraud will undoubtedly present executives in the sector with a few sleepless nights over the coming year, particularly after financial services looked to have turned a corner last year.

With the public and regulatory spotlight continuing to scrutinise financial services ever more closely, both the volume and value of reported fraud in the sector fell during 2016. The value of reported fraud in financial services tumbled more than 62.1%, from £567.2 million in 2015, to £214.9 million in 2016. At the same time, the volume of reported fraud had also dropped, decreasing from 70 cases in 2015 to 58 in 2016. While the most recent upturn in fraud will serve as a wakeup call for an industry where complacency can cost billion, the financial services sector has not been the worst performer over the past 15 years, however.

The greatest increases over that period occurred in real estate, rental and leasing fraud – which saw total value shoot up to £276.5 million from £1.08 million. Other poor performers were retail trade fraud, which has grown from £15.5 million to £337.3 million, and educational services, which increased significantly between 2003 and 2017, albeit at a much lower level, rising from £6.98 million to £31.53 million.

Kaley Crossthwaite, Partner and Head of Fraud at BDO, commented, “While a significant amount of fraud still goes unreported, our research suggests that people are becoming a lot more courageous in coming forward to report it and recovering their assets through the criminal or civil justice systems. There is now an expectation that fraud will be reported and investigated, both internally by corporations, charities, public sector entities and companies operating within regulated sectors. Stakeholders are seemingly no longer content to simply sweep fraud under the carpet in the hope that it will all go away.”

Types of fraud

While, of the top five types of fraud, corruption remains the lowest cost, it has seen the most alarming increase in popularity over the course of the last 12 months. Having been worth a total of £2.8 million in 2017, corruption-related cases soared past £295 million in 2017. This constituted a staggering 10,378% increase in the value of the UK’s corruption bill. This was spread over a mere 5 cases meanwhile (an increase of 2 from the previous year), making this type of fraud one of the most lucrative.

Money laundering saw a 99% increase in value in 2017, hitting £341 million in total. Global money laundering transactions are estimated to be as high as 5% of the global GDP, or roughly US $1-2 trillion annually. According to the United Nations Office on Drugs and Crime, meanwhile, less than 1% of global illicit financial flows are currently being seized by authorities.

However, despite both those methods of fraud undoubtedly involving a significantly higher level of organisation, and drawing a larger amount of funds proportionally, it was still employee fraud which saw the largest value lost. This is due to the larger number of cases occuring – at 153 – as employees find themselves with more opportunities to defraud companies that they work for, thanks to their regular access to internal information. The value of this variant hit £474 million in 2017, rising by 470% from last year.

According to BDO, the most common motive for such behaviour was simply greed. The accountancy and business advisory firm said that while gambling and debt were the next largest contributing factors to reported fraud, with 33 and 19 cases respectively out of a total 577, human avarice was behind 18.9% of reported cases in the UK.

Regional hotspots

In last year’s release, it was reported that East Anglia saw an 802% increase in fraud, while Yorkshire experienced a similar wave of expensive scams. This year, both locales saw significant decreases in fraud value – though, of the two, only East Anglian enjoyed a drop in the volume of cases reported. London and the South East remained the biggest hotspots for fraud in the UK in 2017, with the number of cases going up by almost 30% to 176, and the total value increasing by 76.9% to £1.63 billion – more than half of the UK’s total sum. This is, undoubtedly, due to the fact that London’s City currently houses the financial hub of the UK and Europe, presenting the opportunity for fraudsters to make significantly higher amounts in the affluent area.

Two of the biggest frauds in this area singled out by BDO included a family of VAT con artists, who stole £45 million from taxpayers and lavished it on a fleet of luxury cars, race horses, gambling trips to Las Vegas and mansions around the world, and complex £121 million fraud, where two City traders, motivated by greed, used sophisticated means to defraud a Russian bank.

Beyond London, the Midlands retained its unwanted accolade as the largest hotspot for fraudsters outside the UK capital, with a 38% increase in the number of reported fraud cases since 2003. However, the area did see an overall fall in the average value of fraud from £6.8 million to £3.2 million.

Sat Plaha, Partner and National Head of Regional Forensic Services, said of BDO’s findings, “Whilst the regions outside London have experienced a fall in the total value of fraud in 2017, the 16% increase in the reported cases of fraud in the regions shows the growing risk of fraud. The rising economic pressures and the continuing sophistication in technology mean that fraud is still a contemporary risk for most businesses, and therefore it is essential that businesses continue to deploy a proactive risk-based approach to protect themselves from harm’s way.”