FRAUD DOUBLES YET EXPERT SAYS THE WORST IS STILL TO COME

BDO Stoy Hayward's six monthly update to their annual Fraudtrack report has seen the rate of fraud growth nearly double. Reported fraud for the whole of last year was a staggering £1.2bn yet that figure has nearly been reached in only the first six months of this year. Figures show fraud to June 2009 costing the country £960m. The total number of fraud cases has jumped by a third. Kay Linnell, Forensics Director at BDO Stoy Hayward in Southampton, says: “From a fraud point of view we are a long way from the bottom. It is extremely likely that the total fraud figures will treble during the course of the recession". She added: "There is a whole wave of commercial lending fraud that is yet to crash around the ears of UK and overseas banks." Linnell predicts frightening fraud levels of £3bn per annum and says: “It is no surprise to see that reported mortgage fraud has rocketed or that management ‘cooking the books’ has risen by nearly 50 per cent.” This is alarming when one takes into account Linnell's opinion that 95 per cent of all fraud does not make it into the above figures and remains unreported. In order to establish a clearer picture of both reported and unreported fraud locally, the Southern forensic team will be working with the University of Portsmouth to carry out its second annual fraud survey of businesses across the region over the next few months with the results published towards the end of the year. Of particular interest are mortgage and procurement frauds. Linnell states that what a lot of these mortgage frauds have in common is the over valuation of property prices which has been exposed in the recession. "I am not at all surprised that real estate fraud is now at £97m. What really surprises me is that the figure is so low. We know from experience that banks, property companies, housing associations etc that are hit by property frauds are very unlikely to go to the criminal courts.” However, on face value it is a surprise to see that procurement fraud dropped in the last six months. According to BDO this should not be a surprise. Kay Linnell states: “As a recession starts, organisations focus on cost reduction and reducing their procurement spend which leads to an initial reduction in such frauds. However as the recession deepens, and persists, management start looking for ways to make recoveries. They start mining their procurement data which will lead to more procurement frauds coming to light this time next year.” The finance and insurance sectors suffered £657m of fraud in the first six months but it is interesting to see retail and counterfeiting increase. Simon Bevan, Head of the Fraud Services team states: "We are increasingly asked to look at counterfeiting problems that emanate out of the Far East. These problems are not a few pirate DVDs but the wholesale manufacturing of products which are sold on the internet and then really hit the sales figures of the genuine manufacturer.” Whilst London and the South East are hardest hit by fraudsters, there was a substantial increase in fraud in the North East of England. Bevan warns of complacency saying that his team have undertaken investigations the length and breadth of the country. Linnell agrees "No-one is immune from the problem and all businesses should increase their fraud awareness and during these difficult economic times." Anyone interested in taking part in the survey into fraud and financial risk management in Southern England should email kay.linnell@bdo.co.uk -Ends- Word Count: 603 For more information, please contact Matthew Longbottom at BDO Stoy Hayward on 020 7893 2717 or email matthew.longbottom@bdo.co.uk Notes to editors: Procurement fraud: Typically found in an entity’s purchasing operation with a fraudulent employee perhaps working with an outside accomplice to defraud the employer through bogus or inflated invoices for goods and services. Large scale frauds often taken place in relation to sizeable purchases of Information Technology or other fixed assets. Will also include the corruption of management with purchasing authority by suppliers to encourage orders being placed with a particular business. FraudTrack is prepared by BDO Stoy Hayward and is based on all reported fraud cases of over £50,000 from December 2008 to May 2009. The sources for the database are publicly available and include the UK’s national, regional and local press. BDO Stoy Hayward LLP operates across the UK with over 3,000 partners and staff. BDO Stoy Hayward LLP is a UK limited liability partnership and the UK Member Firm of BDO International. BDO international is a world-wide network of public accounting firms, called BDO Member Firms. Each BDO Member Firm is an independent legal entity in its own country. The network is coordinated by BDO Global Coordination B.V., incorporated in The Netherlands, with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels, Belgium, where the International Executive Office is located. In the UK the Belfast Firm is operated by a separate Partnership known as BDO Stoy Hayward - Belfast. 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