Value of UK fraud halves in 2018 following 15-year high

The total value of fraud in the UK has more than halved over the last year, plummeting from its record high of the year before. However, while value has fallen drastically, volume merely stagnated, and experts have warned that with only one in 50 cases of fraud being reported, the scale of financial loss could be far higher than thought.

In 2018, it was revealed that Britain had seen an exponential boom in fraudulent activities since 2003. Over that 15 year period, fraud rose by billions, with financial services accounting for the largest chunk of the glut, boasting a bill of just under £900 million. It was also the second year in a row that the UK had seen the value of fraud across the nation breach the £2 billion mark, having spiked sharply in 2017.

Finally, however, the UK seems to have stopped the rot. The latest incarnation of BDO’s annual Fraud Track 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. Fraud value declined by 64.7% in 2018, falling from £2.1 billion to £746.3 million.

However, while this represents some progress among large reported cases of fraud, it does not necessarily mean that the situation overall is guaranteed to have improved. The number of reported fraud cases has decreased far less, falling by just 9% from 577 to 525 in 2018. Meanwhile, the analysis from BDO only examines reported fraud cases over £50,000 in the UK. If the number of fraud cases has not fallen drastically, while the value has, it could be the case that smaller cases have plateaued, or even seen a rise, beyond the statistics available to BDO.

 

Kaley Crossthwaite, Head of Fraud at BDO, commented, “Fraudulent activity cost the UK almost £750 million 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.”

At the same time, Crossthwaite cautioned that the drop in the number and value of fraud is hard to get a concrete reading of because a tiny fraction of cases are actually reported. By the reckoning of the BDO Partner, as few as one in every 50 cases of fraud are likely to be reported. She added that the true cost of fraud could be “as high as £37.5 billion per year,” according to the average fraud values found in the firm’s research. In an age of intense reputational scrutiny and legal directives such as GDPR potentially seeing fraud victims stung by fines for failing to comply with privacy regulations, firms are increasingly looking to deal with fraud beyond the judicial system, behind closed doors.

Finance falls

The largest chunk of the plummeting value in frauds analysed by BDO comes from the finance and insurance arena. While the sector saw a value creeping toward the £1 billion mark over the last few years, the sector is no longer even the leading sector for fraud value, falling by a huge £765 million. Public administration, last year’s number two, also saw a decline in fraud value, but a markedly lower one, meaning that with a bill of £168.1 million, it was the sector hardest hit by fraud.

These sectors are traditionally most vulnerable to fraud, as they offer the largest amount of access to potentially lucrative data to a wide cross section of staff. A recent study by SailPoint found that one in five UK office workers admit to having the same password across personal and work email accounts, while 13% would share their password with colleagues. Meanwhile, a shocking 16% of respondents said they would email sensitive company data or files to their personal email.

Relating to this, Crossthwaite remarked, “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.”

However, while progress was made in administration and finance, results in other industries were less impressive. In the last year, the manufacturing sector has witnessed the largest increase in the value of fraud as the total rocketed by 1014% to £22.8 million and the total number of recorded cases rose by 37.5%. There was a dramatic increase in value across charity and construction sectors, while at the same time, there was a  spike in the utilities sector, where the value of fraud boomed by more than 1400% to £9.3 million from just below £618,000 in 2017, despite the number of reported cases dropping by a third. This demonstrates just how much can be at stake as a result of only a few lapses in internal security.

Regional hotspots

As the financial capital of Europe, London understandably hosts the bulk of the UK’s fraud bill, as part of the wider South East of England. With that being said, the region still saw one of the largest declines in fraud value of anywhere in the country. Tumbling by more than 70%, London saw the total figure lost to fraud decline by more than £1 billion in 2018.

Illustrating why fraud value remains so large in London despite the fall, BDO mentioned one notable fraud in London, which 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. According to BDO, Hajiyev’s wife, whose lavish lifestyle included spending more than £16 million in Harrods, was arrested and now faces two charges of embezzlement. This was the first case of an unexplained wealth order in the UK.

Elsewhere, Yorkshire overtook the West Midlands in 2018 as the largest hotspot for fraudsters outside London, with a 51.2% increase to £52 million. That large increase was for the most part due to a significant leap in the value of third-party fraud in Yorkshire, as the average value rose by 51.2% to £1.3 million, up from £860,000. This included one notable £10 million 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, commented on the changes: “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 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.”