Mortgage fraud makes up a fifth of all fraud

19 July 2010 | By Natalie Thomas

The growth of fraud in the UK continues unabated according to BDO’s six monthly update on reported fraud.

In 2009 mortgage fraud only accounted for 18% of all reported fraud and 27% of all fraud in the finance sector.

For the first six months of this year overall fraud losses rocketed to £1.06bn and eclipsed previous half year figures and were almost the same as for the whole of 2008. 

This is the first time fraud levels have soared above the £billion barrier during the interim period in the seven years BDO has been conducting its survey.

The average value of a single fraud has also increased to almost £6m, an increase from £5m last year, and shows that fraud in the UK is still big business.

From these interim results, BDO predicts that the average fraud will top £7m by the end of 2010.

The finance and insurance sector remains a dominant fraud risk with 49% of all fraud in this sector. Third party customers and suppliers are responsible for 17% of all reported fraud on businesses whilst internally management cooking the books have also caused 16% of reported fraud.

This half-yearly Fraudtrack analysis shows that fraud is undoubtedly on the increase and BDO fully expects this to be another bumper year. In particular, BDO expects more enforcement action by regulators in the financial services arena with enforcement action for insider dealing also becoming more prevalent.

Simon Bevan, head of the fraud services unit at BDO LLP, says: “In the past we have seen a focus on procurement type frauds i.e. UK public and private sector organizations paying too much for goods and services.

’However as the recession continues we are starting to see the other side of the fraud equation, namely revenue dilution fraud. We are seeing companies where management commit fraud by either setting up ‘companies within companies’ or diverting lucrative contracts away from the company to third party accomplices.”

Bevan predicts that competition between regulators to ‘act tough’ will lead to regulators following an American model of intrusive regulation.

He says: “We have a combination of political pressure and the understandable desire, in a downturn, for the public sector and corporates to be seen to have a zero tolerance policy. We are therefore likely to see increasing regulatory action.

“Quite rightly British regulators do not want UK investors to experience a Madoff type investor fraud. They are also determined to counter SEC type accusations that the UK is soft on fraud. At various times, we have seen American regulators float this unsupported argument in order to encourage entitles to list on US not UK stock exchanges”.

Bevan believes we will see regulators taking an increasingly macho stance as they compete with both domestic and international regulators to uncover abuse in regulated markets.