Fraud against the UK Government has risen dramatically (142 per cent) over the last three years, as criminals adopt an increasingly businesslike approach. That’s according to audit firm KPMG.
After highs of £679m in 2006/07, such fraud dropped to £286m in 2008/09 – due to concentrated action against the theft of VAT. But from this point levels surged back up to £693m in 2010/11.
London remains, unsurprisingly, the capital of fraud activity in the UK, followed by the Midlands – sitting at £167m in 2010/11.
However, this sum, up from only £7m the previous year, was driven by a tax fraud in Birmingham. Seven men were sentenced to over 40 years for their part in stealing £163m in a ‘missing trader’ tax fraud which used the import of mobile phones and computer parts to manipulate the VAT system. Jeremy Outen, UK Head of Fraud, KPMG, said: “Financial criminals are now becoming more businesslike and methodical. The current generation of organised crime is targeting fraud – making payment systems, such as banking, tax and benefits vulnerable to attack.”
The KPMG Government Fraud Barometer found that fraud against Government, perpetrated by professional criminals, rose by 90 per cent from £277m in 2008/09 to £527m in 2010/11. While the number of actual cases against professional fraudsters dropped 15 per cent from 33 in 2009/10 to 28 in 2010/11, the average case value has more than doubled over this time from £8m to £18m.
Jeremy added: “Traditionally, criminals have relied upon physical acts, such as robbery – they can now commit a fraud and achieve the same returns for much less risk. This is fuelling the audacity and ambition of professional criminals, driving up the size of a fraud. In addition, technology and large scale processing (such as online or call centres) have made large scale frauds easier to accomplish.”
There were three large money laundering cases that came to court over the last year totalling £200,657,000 – demonstrating the desire to tackle organised crime through money laundering itself.
Tax on Government
The majority of fraud committed since 2009 was tax fraud, with 114 cases coming to court over the last year. In fact, this increased 68 per cent from £275m in 2008/09 to £462m in 2010/11. New types of tax have been accompanied by an increase in fraudulent activity, with criminals turning their attentions to carbon trading and green tax allowances.
Jeremy said: “HMRC have been quick to spot fraud and take these perpetrators to trial to stamp out their focus on the tax payments and benefits system. Both HMRC and the DWP aim to deliver a fair and competent service to UK citizens, making payments accurately and on time. However, the customer friendly approach can also be exploited by the fraudsters. Many companies depend on the timely receipt of tax rebates to help cash flow – which are sometimes relied upon to keep businesses afloat. Fraudsters are targeting these very same funds, ensuring the process becomes more difficult for both the Government and the genuine recipient.”
Insider fraud
Management fraud shot up 80 fold from 2008/09 to 2009/10, and edged up again to reach £133m in 2010/11. Jeremy said: “Fraud is committed by senior management who are able to bypass internal controls. Given the repeated and extended nature of most frauds, public sector needs to work extremely hard to detect frauds early, through tight internal controls, data analytical tools, and widely publicised fraud reporting mechanisms.”
A culture in which staff feel able to report their suspicions, and a vigilance to the recruitment of casual or temporary employees, are also critical. In a recent case, three fraudsters were jailed having masterminded a plot to steal £50m from the Inland Revenue. The gang planted undercover operatives in Revenue and Custom offices in London to harvest wealthy tax payers’ identities and got away with £560,000 before officials rumbled their scam.
Customer fraud has also risen tenfold from £2.5m to £25m over the past three years. “Customers” tend to commit low level tax or benefit fraud through lack of disclosure or deliberate misrepresentation. This category also included a couple of cases where services were abused, such as prescription fraud against the NHS.
About the KPMG Government Fraud Barometer
The Barometer measures the value and volume of fraud committed against the Government (from April to March year on year) that is prosecuted in through the criminal justice system.
