According to BDO LLP’s six-monthly update on reported fraud, for the first six months of 2010 fraud losses reached £1.06 billion, eclipsing previous half-year figures and totalling almost the same as for the whole of 2008.
The survey found 16% of fraud comes from internal managers ‘cooking the books’. Greed remains the key motivator for fraudsters with 85% of fraud being driven by greed and the desire to maintain a lavish lifestyle
The finance and insurance sector remains a dominant fraud risk with 49% of all fraud happening in this industry. Mortgage fraud accounts for a fifth of all reported fraud and 36% of fraud in the finance sector.
London and the South East continues to be the hotbed of fraud activity with 71% of fraud but Wales has also experienced 15% of fraud in this interim period compared with only 2% last year.
This is the first time fraud levels have soared above the £1 billion barrier during the interim period in the seven years BDO has been conducting the survey.
The average value of a single fraud has also increased to almost £6 million, an increase from £5 million in 2009, and shows fraud in the UK is still big business.
Simon Bevan, head of the fraud services unit at BDO LLP, said: "In the past we have seen a focus on procurement type frauds – that is, public and private sector organisations paying too much for goods and services. However, as the recession continues we are starting to see the other side of the fraud equation, namely ‘revenue dilution fraud’. We are seeing companies where management commits fraud by either setting up ‘companies within companies’ or diverting lucrative contracts away from the company to third-party accomplices.
"Linked to this unethical activity is an increase in insider dealing where management don’t directly defraud their own employer but their actions leave them open to stringent, and often public, enforcement action by financial regulators. The Financial Services Authority has been cracking down on insider dealing this year with a number of individuals receiving criminal convictions and/or confiscation orders.
"Fraud is as prevalent now as it has ever been and companies need to turn the vigilance screw up a couple more notches in recessionary times. The key message is to think the unthinkable, question the good, the bad and the inconvenient news, and look for any anomalies in the financial statements and any significant lifestyle changes of the people around you. The regulators will impose heavy penalties so make sure you’re confident in the health of your business."
