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Banks suffer as fraud
rides high
KPMG Forensic’s fraud barometer registers
some alarming statistics
Banks have been the main targets
of a major spike in fraud coming to court in the first six months of
2008, according to KPMG Forensic’s Fraud Barometer. Over £630m of
fraud came to court across 128 cases, substantially up from £421m
across 91 cases in the previous six month period, and of that more
than half, £350m, was against the financial sector. KPMG has warned
that the figures are likely to get worse as the full impact of the
credit crunch unfolds.
Fraud against banks totalled more in six months than in any previous
entire year of the 20-year history of KPMG’s Fraud Barometer.
Previously the highest level of fraud against the financial sector
was £200m in 1998. The six-month high was fuelled in part by two big
cases – an alleged £220m attempt to hack into Sumitomo Matsui
Banking Corporation’s systems, and a £70m attempted fraud within
HSBC’s securities services division, it does not include the Jerome
Kerviel Societe Generale case, which took place in France. Even
without these two cases, however, there was over £60m of fraud
against financial institutions coming to court. In the whole of
2007, there was only £37m. There were nine cases of mortgage fraud
worth over £20m in the first half of this year, compared to just 10
cases at £3.7m for the whole of 2007. The FSA has recently warned of
the need for the lending industry to step up its defences against
mortgage fraud.
Hitesh Patel, partner at KPMG Forensic, commented: “These are
worrying indicators. Fraud remains extremely prevalent in the UK,
with professional gangs accounting for over two-thirds by value,
ranging from investment stings to trading scams, card fraud and
money laundering. Banks are working extremely hard to protect
themselves and their customers from fraudulent activity, but the
signs are that organised criminals and syndicates have been
relentless in their efforts. Mortgage fraud cases have started to
come through in the courts too – and it seems likely that there will
be many more to come.
“The cases in this period’s Fraud Barometer largely predate the
credit crunch in terms of when the frauds were committed – the fear
is that we will not see the real and full fraud impact of the crunch
for another six or 12 months or even more, as businesses start to
take a closer look at their operations in this difficult economic
climate. The signs are that we could end up seeing some substantial
losses being suffered.”
-
Fraud up 50% to £630m in
first half of 2008
-
Banks suffer all-time high
of over £350m
-
Mortgage fraud starting to
make an impact
-
Rise in accounting and
employee frauds
Banking on fraud
Two thirds of fraud by value and over half of cases by number were
carried out by organised gangs. The financial sector was their main
target, ahead of investors (£120m) and their usual number one
target, government offices (£69m). One case involved a gang of at
least 17 people living across the UK who infiltrated banks and stole
cheques which they then passed to other gang members who used
sophisticated technology to change the payment or payee details. A
nine-person strong gang was arrested for mortgage fraud against a
range of lenders involving dozens of properties totalling over £3m.
Meanwhile, 40 people were charged in a cash-for-crash scam in which
they staged or forced road traffic accidents in order to make
insurance claims.
Inside jobs
Fraud by individuals within companies was also widespread. Amidst
signs that companies may need to do more to shore up their internal
fraud controls, lower level employees accounted for more fraud than
managers – £94m across 26 cases, compared to £63m across 20 cases by
managers. Generally, the biggest threat of fraud faced by most
organisations comes from managers rather than employees, as they
have seniority and trust and are in a position to influence or
bypass systems and controls. The predominance of employee fraud may
well indicate that some companies lack suitably designed internal
controls to prevent and detect fraud at lower levels within the
organisation.
Some cases demonstrate that companies can never afford to be
complacent, such as the book-keeper at a Yorkshire glass company who
stole £370,000 over a period of five years: the managing director of
the company was her own brother-in-law. Another fraudster went
unspotted for a full 28 years – the clerk at a Devon solicitor’s
firm stole nearly £1m from the firm, diverting money out of the
estates of deceased clients.
Accounting for fraud
Accounting frauds featured heavily, with 20 cases worth a combined
£96m. This compares to 30 cases worth £22m in the whole of 2007. One
large case worth £11m featured the finance manager of an NHS trust
in Essex who was desperate to meet financial targets. This led him
to falsify valuations of hospital land so that it appeared the trust
had a cash surplus of £1m. In fact, it had a £10m deficit.
Many other cases involved false invoices, such as the finance
manager at a charity who cashed donation cheques and took the money
himself, creating a trail of false invoices to cover his tracks. He
took around £150,000, using the money to buy property and luxury
cars. Others didn’t need to go to the lengths of creating invoices –
one financial controller at a construction company simply
transferred money out of a little-scrutinised holding account into
accounts of her own that she had set up, taking some £750,000.
Putting on the Ritz…
Probably the most bizarre case to come to court in the first half of
the year involved a former HGV driver who pretended to be a property
developer. He allegedly conned an investor into believing that he
was acting on behalf of the Barclay brothers to sell the famous Ritz
hotel in London for £250m – a bargain considering its true market
price was considered to be in the region of £600m at the time. The
would-be investor handed over a deposit of £1m, which the fraudster
promptly set about spending.
Hitesh concluded: “The ingenuity and audacity of fraudsters often
simply catches people off their guard. That is why companies and
individuals need to be fully alert to what is, in these challenging
economic conditions, an ever-present and growing threat.”
www.kpmg.co.uk
