Mortgage fraud has nearly quadrupled in value during the first six months of 2010, according to KPMG’s Fraud Barometer.
21 cases with a value of £96 million were reported – compared to the same period during 2009, where there were 18 cases worth just £24 million. Indeed, the whole of 2009 saw a total of only £77 million.
Mortgage fraud accounted for over half of all fraud committed against the financial sector in this period.
One of the biggest cases was worth £50 million, involving two solicitors who were charged with commercial mortgage fraud in relation to obtaining a money transfer by deception and dishonesty, while an estate agent was jailed for six years after attempting to pull off a £2 million mortgage fraud after stealing the identities of two homeowners.
Hitesh Patel, Partner, KPMG Forensic commented on the figures:
“The fact that increasing amounts of mortgage fraud are being prosecuted is cold comfort for the financial services industry. Clearly, more of it is coming to light and more will follow. It is highly probable that the issue is far bigger than our figures demonstrate.
“This is a legacy issue for the banks from the pre-recession boom years when house prices inflated, providing the opportunity for fraud. Banks will be hoping that they have uncovered most of their fraudulent loans. But the trend remains upwards and it could be some time before we see the peak.”
Overall, the Fraud Barometer, which considers serious cases of fraud with charges in excess of £100,000 in the UK courts, found 166 cases of serious fraud in the first half of this year – the highest number of cases in a six month period in the Barometer’s 22 year history.
The cases had a total value of £608.5 million – down 4.3 per cent for the same six month period in 2009 (£636.5 million).
However, the 2009 figures were inflated by one case worth £200 million on its own, whereas in this period the biggest case was worth £66 million, meaning that without this outlier the average value per case has risen.
Management wreak fraud havoc
Managers in companies inflicted far greater fraud damage than their employees, KPMG’s figures show. Though there were more employee cases than management ones (47 compared to 32), management frauds had a far greater value, at £135 million compared to £45 million.
At an average value of over £4 million per case compared to £1 million per employee case, managers are clearly able to carry out larger frauds due to their positions of greater authority and the trust they are afforded.
One example was of a Birmingham finance boss who manipulated the profits of a steel supply firm to ensure a bonus by falsifying the company’s accounting records. He spent over £100,000 at a local lap dancing club, and by doing so 11 redundancies had to be made at the firm, which was nearly bought to its knees as a result of his actions.
Professional criminals remain public enemy number one
Professional criminals perpetrated the most fraud during the period – 56 cases were reported at a value of £391 million, over half the total amount included in the Barometer. Often, professional criminals are targeting investors.
21 such cases totalling £185 million were recorded in the first six months of 2010. Financial institutions were also widely targeted in 48 cases worth £172 million.
‘Boiler room’ schemes are also a favourite scam for many professional fraudsters. Typically they involve firms operating from outside the UK where they try and persuade investors to part with money for shares that are worthless and impossible to sell-on, often at inflated prices.
Vulnerable individuals are targeted which may make their often difficult situation even worse. The Barometer recorded five cases of boiler room fraud, totalling £84 million over the six month period.
Hitesh Patel comments:
“While interest rates remain low, it unsurprising that investors who are looking for new ways to grow their capital, remain susceptible to being targeted by fraudsters. At the same time, professional criminals show themselves to be highly adaptable and always looking for new scams.
“As soon as one avenue is blocked, they will move on to another one. That is why it is important for investors to remain continually vigilant.”
Government departments targeted by fraudsters
Government was targeted in 38 cases worth £178 million: a number of government frauds were tax scams involving benefits, VAT, or carousel fraud, as Hitesh Patel comments:
“At a time when the country has a huge deficit, it’s clear that government needs to do all it can to protect itself from fraud and claw back lost funds.
“It becomes a problem that affects us all. Contrary to popular perception, fraud is not a victimless crime, particularly at a time when social welfare and infrastructure budgets need to be carefully protected. Any losses to fraud are losses from those budgets.”
London and the South East – fraud hotspot
Regionally, London and the South East remains the biggest hotspot for fraudsters – the region accounts for over half of the total cases (88), which equates to a staggering 81 per cent (£493 million) by value. The North East is its nearest rival, with 26 cases reported at a value of £43 million.
Turning risk to advantage
Finally, the Fraud Barometer demonstrates the importance of ensuring that companies have mechanisms to prevent fraud and detect misconduct effectively.
Hitesh Patel concludes:
“Companies who took fraud risk management seriously before the downturn should now be emerging stronger because of it.
“The discipline that they have subjected their businesses to should help them gain a competitive advantage while their competitors get distracted in their reactive combat against fraud and misconduct as the economy recovers.”
