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Fraud – Businesses Continue to Suffer
Fraud affects hundreds
of businesses every year, and can be
financially damaging, stressful, time
wasting, and even damage your image. Yet
sadly the amount of fraud against both the
government (Vat fraud) and businesses is
still increasing.
New research from BDO
Stoy Hayward shows that not only is fraud
against businesses increasing; but that the
larger the amount stolen, the less
likely the fraudster is to be caught.
Frauds against businesses typically involve employees or directors
abusing a position of trust, often in
conjunction with an outsider. In most cases
business fraud victims primarily focus on
recovering the assets, preventing future
frauds and minimising publicity. Only the
‘unlucky’ few fraudsters end up going to
prison, where they will face a typical
sentence of two-five years, even for
involvement in multimillion pound
deceptions. Research for BDO Stoy Hayward
indicated that only 15 per cent of such
frauds discovered lead to a criminal
prosecution, although its own experience is
that the proportion is even fewer.
Simon P. Bevan, the national head of BDO
Stoy Hayward’s Fraud Services Team, said:
"Sadly crime does often pay at the moment if
you are a fraudster, which explains why
large frauds are on the increase – this is a
crime driven by greed, not need.
“When it comes to frauds against businesses,
if you are discovered there is only a small
chance of being prosecuted. When a fraud is
discovered, all but the very largest are not
a priority for the police given their
limited resources. Businesses, not
surprisingly, focus on getting the money
back and protecting their reputations – so
few of such cases, less than 15 per cent,
result in a prosecution. In this case, the
worst a fraudster will face is losing their
job and having to repay most of their
ill-gotten gains.
“Many fraudsters are laughing all the way to
their offshore tax haven. Fraud is set to
keep increasing as long as others see it is
a safe route to making large amounts of
money illegally, particularly in the case of
VAT frauds, where a couple of years in an
open prison is not going to deter anyone
with a criminal mindset.
"Recent increases in the mortgage rate are
likely to drive people who have borrowed
highly into financial problems, and this may
tempt some to commit minor frauds. However,
this will not materially affect the number
of larger frauds – ultimately people commit
large frauds to feed greed, addiction or
other major problems: people do not need to
steal hundreds of thousands of pounds just
to cover an increase in their monthly
mortgage.”
Other findings from BDO Stoy Hayward’s
FraudTrack’s include:
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Business fraud has increased by 42
per cent to ₤538million, caused by
141 frauds over ₤50,000 in value.
This compares to £379million from
139 frauds in the first half of
2006.
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The main driver of this increase is
the growth of VAT carousel frauds,
whose value has increased to
₤468million for the first half of 2007 –
already higher than the whole of
2006 (₤458million) and 220 per cent
above the whole of 2003
(₤135million).
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The Midlands has become the UK’s
fraud hotspot with ₤312million
(nearly 60 per cent of the total)
being undertaken by businesses and
people based in the region –
typically through VAT frauds. In
terms of the number of reported
frauds, London had the most (a
third), followed by the North East
(16 per cent), the Midlands (14 per
cent) and the North West (12 per
cent).
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Fraudsters can expect a light
sentence. The average sentence (not
time served) for frauds of over
₤50,000 is 3.05 years (1.98
including those who get
non-custodial sentences), while the
average sentence for the largest
frauds (over ₤50million) is just
over 6 years.
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Greed is the main motivator – nearly
three quarters of frauds are
motivated by the desire for money or
a lavish lifestyle (where a motive
was disclosed).
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