BDO FraudTrack 7 report
UK fraud stands at record levels and is still growing at an alarming rate. BDO's FraudTrack 7 report shows how crucial it is that businesses engage with the reality of the problem, take steps to address it, and safeguard their operations for the future.
A full copy of FraudTrack 7 can be downloaded by clicking here.
Headline figures
- Reported fraud broke the £2bn barrier for the first time in 2009.
- Amounts lost to fraud by businesses and the public sector have increased by 76 per cent during the recession.
- The average value of each fraud is now over £5m compared to £1.8m in 2003
BDO believe even higher levels of fraud will soon be uncovered, particularly in bank borrowing, rising as high as £6bn in the next few years.
Reported fraud is only the tip of the iceberg – most companies prefer to keep fraud away from the courts and the media. BDO estimate that 90 per cent of large frauds are not reported to criminal authorities, and believe the real cost of fraud could be nearer £40bn.
Sectors
In terms of sectors, finance and insurance are experiencing higher levels of fraud than in the past; while fraudulent activity is also being reported in some relatively new areas including retail, construction, real estate and food services:
- Finance and insurance – £1.34bn
Accounting for some 64 per cent of all fraudulent activity, fraud in this area has risen a massive 70 per cent in the last year. Mortgage fraud represents some £375m of the total figure.
- Retail – £123m
In a sector with low margins, fraud can easily cause insolvency. Retail must do more to protect itself from simple frauds involving stock discrepancies and overpayments.
- Construction – £23m
This sector has been hit hard by the twin effects of the recession and an upsurge in fraudulent activity.
- Real estate – £97m, Food services – £207m
Two widely different areas are facing the same problems: a dramatic increase in fraud, usually centring on the unauthorised use or misuse of assets.
The legal perspective
The Fraud Act 2006 was introduced to facilitate the investigation and prosecution of fraud, noting the three ways in which fraud can be committed:
- false representation
- failing to disclose information
- abuse of position
The Act also meant that it was no longer necessary to prove the victim was deceived, only that the fraudster was dishonest and intended to make a gain for themselves or cause a loss to another. Maximum custodial sentences were also increased from seven to ten years.
In the three years since the Act's introduction, the average sentence has not changed significantly for frauds up to £20m in value. However, custodial sentences for larger frauds have increased in length by some 50-100 per cent depending on value. Nevertheless, the vast majority of cases never get to Court.
Summary
Fraud can have a devastating impact on business that goes far beyond the merely financial. Through a fictional scenario involving procurement fraud, FraudTrack 7 looks in detail at how fraud can affect different people, from directors to whistleblowers and even the fraudsters themselves. It shows how the profound impact of falling victim to fraud will hit every level of a business.
FraudTrack 7 also contains useful material on the basic checks all businesses should carry out to protect themselves from fraud, as well as the top ten questions they should ask themselves in this regard.
For more information on any aspect of FraudTrack 7, or on the services offered by BDO's exceptional Fraud team, please contact National Head of Fraud, Simon Bevan.
A full copy of FraudTrack 7 can be downloaded by clicking here.
