| White collar crime is spreading like the flu |
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| Written by Adrie van der Luijt | |||||||||||||||||||||||
| Monday, 14 January 2008 | |||||||||||||||||||||||
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New research from accountants BDO Stoy Hayward shows that the number and value of business fraud cases going through the criminal courts is falling dramatically.
The firm warns that UK PLC are losing faith in the police in combating fraud by employees and executives. Simon P. Bevan, the report’s author and national head of BDO Stoy Hayward’s Fraud Services team, says, “Fraud is actually spreading like the flu: until you are hit by it you don’t always know how bad it can be.” He adds that less fraud is going through the courts and that many fraudsters may be feeling invisible. Bevan, therefore, advises that more people should be taking anti-fraud measures, such as fully checking references, to prevent full blown problems before they detect the symptoms. Fall in the average sentence length “The gap between the number of frauds investigated and prosecutions in criminal courts is widening. Our fraud team took on up to three investigations a week in 2007, yet supposedly the amount of fraud is decreasing,” commented Bevan. He says that fraud is not a victimless crime, contrary to common public perception. He adds that highly sophisticated and organised fraud drains resources and affects public services. VAT and other tax frauds reported in 2007 were worth £544 million, costing every UK adult over £18.50 in 2007. VAT fraud cost £10 for every man, woman and child in the UK in 2007. There has been a consistent fall in the average sentence length since 2003, particularly for frauds worth less than £1 million. In 2003 the average custodial sentence was 3.06 years, whereas in 2007 it was 2.77 years, a reduction of about 9.5 per cent. Fraud continues to be a man’s game, with men accounting for about 80 per cent of fraudsters. Virtually all frauds above £1 million committed are by men. The value of reported fraud in the UK has increased by 153 per cent from £411million in 2003, when BDO Stoy Hayward started its FraudTrack analysis. Regional differences London and the South East accounted for £343 million (34 per cent) followed by the Midlands with £320 million (32 per cent) and the North West £240 million (24 per cent) in terms of the location of activity by fraudsters. London’s fraud figure is always high because it is the centre of the financial services industry. Those with drug and alcohol problems who commit frauds are being hit with tougher sentences by judges. Criminals who plead that gambling or marital problems drove them to it, however, could get off lightly. Average Custodial sentence by motive (where reported)
Either way, the average sentence this year of 2.8 years for committing a fraud allows fraudsters to laugh all the way to their offshore bank, as increasingly the proceeds of fraud cross international boundaries. “When you balance the low chance of being discovered and prosecuted against the millions many white collar fraudsters make, it is not hard to see why fraud is increasing, and more people than ever are getting away with it,” says Bevan. Financial services sector BDO Stoy Hayward’s annual FraudTrack research identified 267 reported cases of business fraud worth above £50,000 in 2007, with a total value of £1.04 billion. This compares to 2006, when it identified 295 cases with a value of £1.37 billion, a reduction of 24 per cent. When large VAT frauds against the Treasury are removed, the figures are even starker. Just £496 million of non-VAT fraud cases were reported in 2007 compared to £913 million in 2006, a fall of 46 per cent. About 87 per cent (£432 million) of these non-VAT frauds were reported by business in the financial services sector, with all other sectors of the economy accounting for only 13 per cent of reported non-VAT frauds. This means that organisations employing well over 80 per cent of the UK workforce are only reporting 13 per cent of fraud by value. The survey found that greed continues to be the main cause of fraud, accounting for 63 per cent of cases in 2007 where a cause was cited. Problems arising from debts and gambling accounted for 23 per cent. International boundaries Bevan has more than 23 years’ experience investigating fraud in over 20 countries. He adds that fraudsters are increasingly trying to maximise their takings by working internationally. This creates difficulties for those organisations tasked with investigating fraud who find it difficult to cross international boundaries on a timely basis. A recent UK-based client asked if data could be captured within two days from a computer on a ship due to dock in Shanghai. A Mandarin speaker from BDO’s German team and a member of the firm’s New York computer forensic team, co-ordinated by the London office, were in a position to meet the ship and assist the client within 24 hours. “With an economic downturn now already affecting the property and financial services sectors, I expect to see many more frauds being discovered in 2008. Without awareness of the risks of fraud, however, one cannot manage the problem,” Bevan says. His advice to businesses generally is to be rigorous in checking the references of people they employ, especially senior executives and temporary staff. “In my experience when you check into the background of a fraudster, invariably there is a skeleton in their cupboard or an inconsistency in their CV that, if identified earlier, would have prevented the business becoming a victim,” Bevan concludes. Related articles
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