United Kingdom steps up fraud prosecutions

Internal Auditor, April, 2006 by K. Alvarado

THE MONETARY VALUE OF FRAUD PROSECUTIONS IN THE United Kingdom increased threefold in 2005--the highest level recorded since 1995. Fraud cases brought to British courts totaled more than [pounds sterling]900 million (US $1.5 billion) last year, up from [pounds sterling]329 million (US $575 million) in 2004, according to KPMG's Forensic Fraud Barometer. The number of fraud cases increased from 174 in 2004 to 222 in 2005. The KPMG report includes UK fraud cases involving more than [pounds sterling]100,000.

The British government is the principal fraud victim, mainly due to tax evasion, value added tax (VAT), and benefits fraud. Fraud against financial institutions also increased dramatically from around [pounds sterling]37 million in 2004 to more than [pounds sterling]360 million in 2005, fueled by bank and credit card fraud, identity theft, and forged checks.

Although professional gangs were involved in nearly half of UK fraud cases, most of the frauds were the work of insiders, such as management or other company employees. "Criminal gangs appear to be very active with aggressive stings," says Jeremy Outen, a partner at KPMG Forensic. "While in the private sphere, internal frauds to fund excessive lifestyles or to pay off burgeoning debts show no sign of abating."

According to the report, fraudsters have come up with creative ways to get past new security controls implemented by many companies. This has led to an increase in "phishing" scams in which fraudsters send users an e-mail falsely claiming to be a legitimate company, such as a bank or credit-card company, to trick the user into providing personal information.

UK financial institutions also need to protect themselves from employees disclosing information to outside parties, including criminal gangs. "Companies need to review their internal processes where appropriate and make more use of some of the sophisticated fraud detection software packages that have been developed," Outen notes. "These can help identify anomalies in a company's data flow and e-mail traffic that could be indicators of fraud."