The Return of the Old-Fashioned Villain

Sophisticated defences are pushing criminals back to more traditional techniques

The latest bi-annual Fraud Barometer from KPMG has shown a rise in individuals committing more traditional swindles such as Ponzi schemes, cheque fraud and procurement fraud. The findings are in broad agreement with figures from CIFAS, the UK fraud monitoring service, published last week

Drilling into the detail, the KPMG analysis shows that identity fraud more than doubled in value to £26.3 million from £12.3 million the year before. Counterfeit goods fraud was three times the five-year average at £22.9 million and Ponzi Schemes worth £72 million came to court – again three times the £20 million level seen in 2011. The data shows a similar rising trend for procurement fraud, which increased to £21.4 million in 2012.

Hitesh Patel, UK Forensic Partner at KPMG, said: “What we are seeing is individuals looking to feather their nests through ripping off employers, banks or the government. In the last few years we have become used to sophisticated frauds at eye-watering values. While the total value of fraud has dropped substantially in the absence of so-called fraud ‘super’ cases, the old-fashioned con man hasn’t given up his tricks. Times may be tough but the data shows that some people are unwilling to give up the lifestyles they’ve become accustomed to.”

The analysis also shows that insider fraud is hitting corporates hard. Fraud perpetrated by either management or employees accounted for 80% of the financial loss through fraud experienced by UK businesses in 2012. The number of cases involving employee fraud rose to 35 in 2012, up from 22 the year before. Their value has also seen a sharp climb, more than doubling from £12.0 million in 2011 to £25.1 million over the past 12 months.

 There was also a marked increase in cases involving individuals over-claiming benefits or evading tax (15 cases compared to 3 in 2011).

“Tax evasion is one of the hot topics of the moment but an increasing assault on the social welfare budgets, particularly benefit fraud, is a real and increasing threat for the government, as shown by the latest figures,” said Patel. “For all the talk of austerity, measures really kick in this year and accordingly we expect to see an increase in this kind of fraud this year as personal pressures mount for individuals. Fraudulent actions of individuals in both the public and private sectors exacerbate the need to make cuts in the first place and cause more than just monetary loss: jobs can be lost and already tight government budgets are stretched further, with implications for the delivery of services.”

Patel went on to say: “Simple, opportunistic fraud remains evergreen and on the ground, our clients’ current experience is very much that fraud is still prevalent.  Organisations need to consider these basic fraud threats, as well as the new and complex threats. For example, we are seeing a large number of clients being approached by suppliers purporting to have changed their bank details at present, and requesting payment to the updated account. In a number of cases, sadly we are seeing this succeed. Additionally, the banks, perhaps focused on regulatory efforts to combat financial crime at the front end, such as money laundering, are also enduring an increase in old-fashioned back office fraud.”

The report suggests that there is some good news in the fight against fraud. Over the past year the number of cases perpetrated by professional criminals fell from 98 at the end of 2011 (valued at £1.4 billion) to 79 in the year to December 2012 (valued at £414 million). There is, however, no room for complacency as organised crime still accounts for 50% of the total fraud value prosecuted in 2012, the reserach found.

“While it’s good news to see a drop in the value of fraud, organisations should not be fooled into thinking that they can drop their guard. The history of KPMG’s Fraud Barometer tells us that the trend is a rising one. We are simply catching our breath,” Patel said.