79% jump in average cost of fraud

There has been a 79% increase in the average cost per fraud in the first six months of this year according to BDO which puts the total value of reported fraud in the UK during the period at close to £800m, and calls for more due diligence

The firm’s 2015 interim Fraudtrack report shows fraud in the first half of the year rose to £798m, nearly £80m more than the amount reported in the same period last year.  The  average cost per fraud was £3.27m, compared with £1.82m in the same period 12 months ago.

Nearly a third (32%) of the cases reported were committed by employees, costing UK organisations more than £46m. The most common types of fraud included the straight diversion of cash into bank accounts, changing supplier details to friends or family member’s bank details and direct payments to self/other bank accounts via cheques or online payment systems.

Employee fraud accounted for the largest number of cases reported, followed by investment fraud (23%) such as Ponzi schemes and boiler room scams, third party fraud, which includes that which is committed by suppliers and customers (20%), and non-corporate fraud (16%).

Third party fraud (£309m) and money laundering (£290m) were the largest areas of fraud by value. Crossthwaite said: ‘The level of investment fraud is the stand-out category. This may be the result of “too-good-to-be-true” investment opportunities, such as those which offer investment in precious metals, gems and other esoteric products, turning out to be just that. There is a risk that with the recent pension freedoms, these illegitimate investment offers will continue and perhaps even increase, luring a new generation of investors with market leading returns.’

Kaley Crossthwaite, partner and head of fraud at BDO, said: 'Our analysis shows a resurgence in reported fraud, indicating that people are still not being vigilant enough and need to step back and think about how they, personally, or their business, is susceptible to fraud.

‘Preventing this can be as simple as putting training in place, regularly checking fraud controls as well as setting the tone at the top and ensuring it filters down into the organisation, creating a culture of healthy scepticism.’

The type of fraud attacks is also evolving from established third party fraud techniques such as phishing and changing of supplier details, with new trends such as false employees and contractor creation, generating an artificial inflation of costs and customers purchasing non-existent products such as flights, magazines and car insurance.

‘From this it is clear that businesses need to be more thorough in all due diligence carried out, not only on sale and purchase transactions but on their existing and new suppliers, customers and new recruits,' warns Crossthwaite. 'This is not only about preventing future losses but also thinking about the long-term damage that can be done to a business in terms of its ability to get new suppliers and customers as well as their reputation in the market,’ Crossthwaite said.

London fraud tops the list with the value of reported cases at £460m. Yorkshire (£166m) had the second highest figure, whereas East Anglia, with a reported figure of only £242,776, was the area least affected by fraudulent activity in the first half of the year.

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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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