Fraud losses fall to £724m

The value and volume of fraud cases heard in UK courts fell steeply last year, despite lockdown fraudsters taking advantage of consumer uncertainty during the pandemic, according to research by KPMG

The firm’s annual fraud barometer, which records fraud cases of more than £100,000 reaching UK courts, reported a total of 180 of cases in 2020, a 51% drop when compared to 369 cases in the previous year.

There was also a 36% fall in the value of alleged frauds which made it to court, totalling £724m compared to £1.1bn in 2019, as Covid-19 restrictions negatively impacted the efficiency of courts processing.

Of this total, one film piracy case, which if successful would have cost the industry an estimated £200m, nearly doubled the value of fraud committed up to July 2020. By excluding this outlier, the data for the whole of 2020 demonstrates a significant decrease in the value of fraud cases compared to last year, KPMG said.

Roy Waligora, head of UK investigations at KPMG, said: ‘The brewing backlog of untried cases continuing to build up like water behind a dam cannot be ignored.

‘Businesses and the general public must be cognisant of the fact that the drop in both the value and volume of fraud cases is not reflective of a downturn in economic crime, but rather fallout following the Covid-19 lockdown restrictions on the courts.’

Fraud categories

KPMG’s analysis indicates procurement, loan and mortgage, counterfeit goods, and misappropriation of assets fraud, were the busiest areas in 2020.

Procurement fraud rose by 200% compared to 2019, from £16m to £49m. The value of loan and mortgage fraud ballooned 675% from £9.7m to over £75m with the number of cases falling by one.

While the number of cases dropped from 19 to five in the 12-month period, the value of fraud secured through counterfeit, pirated or below stated quality goods activities rose over 415%, from £39m to over £202m.

In contrast, tax fraud, including tax refunds, evasion of duty, evasion and VAT fraud fell by 93% from £721m to £54m over the same period.

Romance fraud, where cases often link to the online dating practice of “catfishing”, halved in value; however, the number of cases remained constant. In one case, a serial fraudster convinced women he had met through a dating app to give him £440,000 under the pretence that he was a successful currency trader who could invest their money which he used to fuel his lavish lifestyle instead.

Fraud cases with addiction listed as the purported motivator rose from 16 to 21 and grossed over £7.3m in 2020, compared to £7.5m the previous year. Perpetrators scammed eBay users, stole from employers, churches, government benefits, charity and there was even an attempt to blow up a cash machine, all to fund gambling or drug addiction.

Waligora said: ‘The rise in addiction-related figures suggest that indications of the mental toll of lockdowns are beginning to emerge in our data, as more spare time leads to greater susceptibility to addiction and increased financial pressures.

‘Aside from individual cases arising from lockdown and Covid, economic pressure on businesses may drive an increase in manipulated earnings.’

Looking ahead, KPMG predicted that fraud cases are set to increase, and warned that companies should particularly be mindful of insider fraud and embezzlement-related incidents as employers do not know what the new normal looks like and internal controls continue to be compromised with staff working from home indefinitely.

The firm said furlough-related fraud will begin to make its mark in 2021, while the extent of the impact of these government schemes will not be fully evident until detected and investigated by 2023.

Waligora said: ‘The year ahead will mark how authorities plan to tackle these furlough related fraud cases - through enforcement or amnesty?

‘Given the fact that the cost of trying to recuperate losses and investigate fraud on these small loans would dwarf the value of the actual fraud for both the bank and the government – it may be that the circumstances favour the criminal. Watch this space.’

As regards the backlog of fraud cases still to be heard, KPMG said measures such as virtual courts would likely ease the pressure. 

A recent poll conducted by KPMG in partnership with Baker McKenzie, found that 71% of respondents had participated in virtual hearings compared to 44% pre-Covid-19, with the experience being cited as overwhelmingly positive by more than half.

Fraud Barometer 2021

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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