Corporate fraud cases soar

By November 10, 2014 No Comments

Businesses are increasingly falling victim to fraud – most of it committed by their own employees, new figures show.

The number of cases in the South West soared by 136% last year to 33, from 14 in 2013, according to accountants KPMG’s latest Fraud Barometer. 

Thirteen firms in the region were hit by the crime last year, it shows. Some 52% of these frauds were carried out by employees or management at the business.

The total cost of the so-called white collar crime in the region was £33.6m last year, up 127% on 2013’s £14.8m.

However, this figure was distorted by the high-profile Give & Take (or G&T) case which centred on a pyramid selling scheme that generated £21m, and cost around 10,000 victims – mainly women – thousands of pounds in savings.

Nine women – all said to be pillars of their local communities around Bristol – were prosecuted at Bristol Crown Court in connection with the scam.

Professional criminals were the biggest perpetrators of fraud, committing 70% of cases in the South West, according to the KPMG report.

But businesses were more likely to suffer fraud at the hands of their own staff – or even their management, the report reveals. It called for a tougher approach by businesses and an end to the culture of ‘turning a blind eye’. There also needed to be clear policies to protect whistle blowers.

KPMG head of forensic for its South region, Akhlaq Ahmed, said dealing with these internal attacks could stifle growth for businesses.

“As well as the financial cost to the business, there is an opportunity cost as management time is spent dealing with the attack and its repercussions rather than focusing on running the business and achieving its goals,” he said.

“Both of these costs are not welcome at the best of times, let alone when businesses are struggling to compete in today’s economic environment.”

He said the high level of fraud by employees and management demonstrated that there was still a significant threat coming from those who know the business intimately and could use this information to their advantage.

“We have seen a prolonged period of low wage growth coupled with a high cost of living,” he said. “This has tempted some to put their hand in the till so they can live the life they have become accustomed to.

“As well as financial personal debts and everyday expenditure, there are a number of other motivations to commit fraud: funding a gambling habit, paying for a lavish lifestyle or just pure greed.”

He pointed to one case this year when a property firm surveyor ordered equipment under his employer’s name, sold it and pocketed the cash. Over three years he stole a total of £100,000 to fund his gambling habit.

“Being able to trust your colleagues is fundamental to running a successful business. But you need to make sure that effective and robust controls are in place to ensure that, if tempted to commit fraud, there is minimal opportunity for them to do so,” he added.

“Creating a culture of zero tolerance of fraud and misconduct in your organisation is also paramount. As well as this, there should be a clear policy for protecting those who ‘blow the whistle’ from reprisal as it is the employees of an organisation who are its ‘eyes and ears’ when it comes to spotting misconduct which could damage business.”

Another case involved a company secretary who diverted cheques for more than two years from her employer to pay personal bills. In total she stole £400,000 to finance expensive family holidays. All the money has been spent and she is now penniless.

Ahmed added that businesses needed to act early when they had concerns. “When it comes to spotting fraud, time is of the essence,” he said. “Early detection mitigates the size of the fraud, gives businesses a higher chance of recovering their money and also limits the damage done to their organisation.”

Nationally, the number of cases involving staff with authority over finances rose from three to 29 during the course of the year, according to the Fraud Barometer – with the value of these leaping from £600,000 to £11.7m.

Of particular note were individuals responsible for processing staff salaries, as the amount of money lost through payroll fraud climbed from £1.2m in 2013 to £6.3m last year.

One case involved an individual who invented fake companies and imaginary staff so that he could transfer £3m worth of false payments and wages into 20 bank accounts, from which he funded a gambling addiction and sent money to his fiancée in Thailand.  His actions were discovered by a colleague, but rather than report the crimes, this individual demanded a cut of the stolen funds – totalling £1.1m – to keep quiet.

Buckland, R. (2015). Corporate fraud cases soar – with staff most likely to be behind the crime, new report reveals. Available: Last accessed 16th Jan 2015.

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