Value of Scottish fraud drops by three quarters

The value of fraud in Scotland dropped 76.8 per cent in 2017 to £16.2m having recorded a four-year high in 2016 following a 283.1 per cent increase to £69.6m, according to new research published by accountancy firm BDO.

BDO’s FraudTrack report, which examines fraud cases over £50,000 in the UK, reveals that despite the dramatic decrease in the total value of fraud in Scotland in 2017, the number of reported cases increased 38.9 per cent to 50, up from 36 in 2016.

The highest number of fraud cases were committed in London & the South East (176 in 2017) while Scotland recorded the fourth highest number of frauds in the UK.

Some of the costliest frauds in the region included a seven-year scam in which a corrupt council employee siphoned off more than £1m from his employers, and the case of a landscape gardener who earned more than £120,000 with an illegal code-sharing scheme that could have cost TV giants Sky £4.8m.

Nationally, the total value and volume of reported fraud in 2017 hit a 15-year high, with the value of fraud increasing 538 per cent to £2.11bn.

BDO’s research reveals that the number of reported fraud cases across the UK has increased to 577 in 2017 from 212 cases in 2003 - an increase of 172 per cent. The average value of fraud has also risen by 133 per cent to £3.66m from just over £1.5m in 2003.

However, the pace of growth in the value of UK fraud has slowed, increasing by 6.5 per cent to £2.11bn. This is down significantly on the previous year’s increase where the value of reported fraud rose by 31.5 per cent to £1.99bn.

In the last year, the financial services sector has witnessed the largest increase as the total number of cases rocketed by 72.4 per cent and the value of fraud has risen by 318.8 per cent to £899.7m. Another dramatic increase in 2017 occurred in the charity sector, with the value of fraud rising over 300% to £8.5m, up from £2.1m in 2016, as the number of reported cases almost doubled.

In contrast, public administration fraud saw a 73.2 per cent drop in value to £368.5m from £1.37 billion in 2016. This was due in large part, however, to the absence of a single £1bn VAT ‘carousel fraud’ case that occurred in 2016.

The greatest increases over the past 15 years occurred in real estate, rental and leasing fraud, with the total value shooting up to £276.5m from £1.08m, and retail trade fraud, which has grown from £15.5m to £337.3m. The value of educational services fraud also increased significantly between 2003 and 2017, albeit at a much lower level, rising from £6.98m to £31.53m.

Kaley Crossthwaite, partner and head of fraud and financial crime at BDO, said: “While a significant amount of fraud still goes unreported, our research suggests that people are becoming a lot more courageous in coming forward to report it and recovering their assets through the criminal or civil justice systems. There is now an expectation that fraud will be reported and investigated, both internally by corporations, charities, public sector entities and companies operating within regulated sectors. Stakeholders are seemingly no longer content to simply sweep fraud under the carpet in the hope that it will all go away.”

BDO found that London and the South East remained the biggest hotspots for fraud in the UK in 2017 with the number of cases up by almost 30 per cent to 176, and the total value increasing by 76.9 per cent to £1.63bn. Two of the biggest frauds in this area included:

The Midlands continues to remain the largest hotspot for fraudsters outside London, with a 38% increase in the number of reported fraud cases since 2003 but an overall fall in the average value of fraud from £6.8m to £3.2m.

The average value of fraud in the North West has increased by 255 per cent to £1.68m, with tax fraud accounting for more than 56 per cent of the total value of all reported cases in the region.

Sat Plaha, Partner and National Head of Regional Forensic Services, said: “Whilst the regions outside London have experienced a fall in the total value of fraud in 2017, the 16% increase in the reported cases of fraud in the regions shows the growing risk of fraud.

“The rising economic pressures and the continuing sophistication in technology mean that fraud is still a contemporary risk for most businesses, and therefore it is essential that businesses continue to deploy a proactive risk-based approach to protect themselves from harm’s way.”

Greed remains the greatest driver of fraud across the UK with 18.9 per cent of cases stemming from human avarice. After greed, gambling and debt were the largest contributing factors to reported fraud with 33 and 19 cases respectively out of a total 577.

In 2017, the research highlighted a number of instances where celebrity endorsements have been used to lend credibility to scams, as well as cases where celebrities have either been victims of fraud or - in the case of a former rugby star from Richmond - part of the defrauding process itself. One of the biggest celebrity-related frauds was a £100m tax scam in which 730 celebrities, including comedians, sports stars and relatives of politicians, were conned into believing they were investing in cutting-edge research and development reforestation projects in Brazil and China.

There has also been a significant increase in counterfeiting fraud, whereby products such as designer clothes, accessories, electricals or cosmetics are fake brand copies but sold as authentic, with the value up 201 per cent on 2016 to £16.9m, and the number of cases up 375 per cent from 4 to 19.

Kaley Crossthwaite added: “There is a common misconception that you will be able to spot a fraudster – you can’t. Our research shows that anyone can be a victim, including celebrities, rich and poor alike. The old saying “If it looks too good to be true it probably is”, is so important to remember – don’t be taken in by luxurious brochures or fancy websites or celebrity endorsements – it may all be a sham.”