FRAUDTRACK

FEBRUARY 2017
REPORT
CONTENTS
EXECUTIVE SUMMARY 01
STAY ONE STEP AHEAD 02
SOCIAL ENGINEERING 03
TYPE OF FRAUD IN 2016 04
INDUSTRY SECTOR FOCUS 05
MOTIVE FOR FRAUD IN 2016 08
FRAUD BY LOCATION 09
OUR SERVICES 10
 FEBRUARY 2017 | BDO FRAUDTRACK REPORT 01

EXECUTIVE SUMMARY

Welcome to BDO’s 14th FraudTrack report. Since 2003

we have been tracking fraud cases reported in publically
available sources. FraudTrack includes all fraud cases valued
at over £50,000 in the UK.
This year our analysis shows that the total value of fraud reported in 2016 was £2bn.
This is an increase of 32% from the previous year and a five-year high. The average value
of fraud also increased, rising by 35% to £3.9m in 2016 from £2.9m in 2015. The total
number of fraud cases, however, fell by 3% to 504 cases from 519 cases in 2015.

TOTAL VALUE OF REPORTED FRAUD RISES BY ALMOST

A THIRD A FIVE-YEAR
£1.5BN IN 2015 TO £2BN IN 2016
FROM
HIGH
AVERAGE VALUE OF REPORTED
FRAUD INCREASES BY 35% FROM £2.9M IN 2015
TO £3.9M IN 2016

VOLUME OFCASES
REPORTED FRAUD
FALLS BY 3%
62% FROM £567M IN 2015
VALUE OF REPORTED FRAUD
IN FINANCE & INSURANCE
FALLS BY TO £215M IN 2016

220% 69%
TOTAL VALUE AND IT
OF TAX FRAUD MAKES UP
INCREASES BY OF ALL FRAUD BY VALUE IN 2016

LONDON & SOUTH EAST, NORTH

WEST AND WEST MIDLANDS
AGAIN SUFFERED THE
HIGHEST
NUMBER OF REPORTED FRAUD
CASES, ACCOUNTING FOR 32%, 15%
AND 11% OF CASES, RESPECTIVELY
02 BDO FRAUDTRACK REPORT | FEBRUARY 2017
Time and again when investigating
fraud cases, both large and small,
we see that a lack of effective
internal controls has allowed fraud
to be perpetrated. In many cases
we see that internal systems and
controls have been put in place
but that they were simply not fit
for purpose in preventing fraud.
STAY ONE STEP AHEAD
Fraudsters are cunning and make it their
business to trick and manipulate in order
to commit their fraud. It is therefore vital
that you stay one step ahead in order to
stop them in their tracks.
In order to prevent and detect fraud it is
essential to be proactive. Implementing
robust systems and controls is key,
but it is equally important that their
effectiveness is frequently tested, and
updates made where required. Taking this
approach provides peace of mind that
your fraud defences are up to date and
your business is protected.
It is also crucial that sufficient training
is provided to ensure that employees
not only understand how and why the
controls operate, but that they also
understand what action to take if they
suspect fraud has taken place.
As technology becomes more
sophisticated and increasing amounts of
our professional and personal information
are more accessible online, businesses and
individuals now face an unprecedented
risk of fraud through cybercrime and
social engineering.
 FEBRUARY 2017 | BDO FRAUDTRACK REPORT 03

Fraudsters use social engineering to convince individuals to divulge

confidential or personal information that may then be used to
commit fraud. As computer systems become increasingly secure in
response to cyber-attacks, some fraudsters find it easier to target
the weaker ‘human’ areas of the control environment. Confidence
tricksters use a range of different methods, such as phishing and
impersonation, to manipulate people into divulging information
about a business or an individual. The information is ultimately
used by the fraudster to steal from their victims for their own
financial gain.

The most important safeguard against social engineering

attacks is to spread awareness of the methods used
by fraudsters. Training your staff to recognise social
engineering methods is the first line of defence for your
organisation. Being proactive now could save you and
your business from financial loss and reputational
damage in the future.

SOCIAL
ENGINEERING
04 BDO FRAUDTRACK REPORT | FEBRUARY 2017

TYPE OF FRAUD IN 2016

The types of fraud with the highest reported value in 2016 were tax fraud, third party fraud
(fraud committed by customers or suppliers) and money laundering.
There was a sharp increase of 220% in the value of reported tax fraud in 2016, which was
due in large part to a carousel fraud valued as £1bn. There was however a significant drop
in the value of money laundering which saw a year on year decrease of 51%, with third
party fraud seeing a decrease of 38%.

VALUE OF FRAUD BY TYPE

OTHER 2015 2016

NON-CORPORATE

MORTGAGE FRAUD

EMPLOYEE FRAUD

MONEY LAUNDERING

THIRD PARTY FRAUD

TAX FRAUD

0.0 0.4 0.8 1.2 1.6

£ Billions

Industry sectors with the highest levels of reported fraud by value in 2016 were Public
Administration, Finance & Insurance and Non-Corporate (fraud against individuals).

VALUE OF FRAUD BY INDUSTRY SECTOR

WHOLESALE TRADE 2015 2016

HEALTH CARE AND SOCIAL ASSISTANCE

ARTS, ENTERTAINMENT AND RECREATION

OTHER

NON-CORPORATE (INDIVIDUALS)

FINANCE AND INSURANCE

PUBLIC ADMINISTRATION

0.0 0.4 0.8 1.2 1.6

£ Billions
 FEBRUARY 2017 | BDO FRAUDTRACK REPORT 05

INDUSTRY SECTOR FOCUS

PUBLIC ADMINISTRATION

The value of reported fraud in the public administration sector saw an increase of
205% in 2016, rising from £451m in 2015 to £1.4bn in 2016. The number of public
administration fraud cases reported in 2016 also showed an increase, rising from 114
cases in 2015 to 150 in 2016 – a 32% increase.

SPLIT OF FRAUD CASES IN PUBLIC ADMINISTRATION IN 2016

OTHER
THIRD PARTY FRAUD TAX FRAUD
OTHER EMPLOYEE FRAUD

THEFT AND CASH FRAUD

MONEY LAUNDERING

Reported tax fraud in public administration showed a 220% increase in value in 2016
compared to the previous year. This was largely due to a huge carousel fraud case valued
at £1bn. The number of tax fraud cases also showed a 41% increase, rising from 95 in
2015 to 134 in 2016. However, if the large case of £1bn is stripped out, the average value
of each tax fraud case in 2016 actually fell by 39% from £4.5m in 2015 to £2.7m in 2016.

Aside from tax fraud, money laundering was the second most common type of reported
fraud within the public administration sector in 2016. Although still high at £4.4m,
money laundering within the sector actually showed a 78% decline in 2016 from £20.1m
in 2015.

VALUE OF NON-TAX FRAUD CASES IN PUBLIC ADMINISTRATION

OTHER 2015 2016

THIRD PARTY FRAUD

OTHER EMPLOYEE FRAUD

THEFT AND CASH FRAUD

MONEY LAUNDERING

0 5 10 15 20 25
£ Millions
06 BDO FRAUDTRACK REPORT | FEBRUARY 2017

INDUSTRY SECTOR FOCUS CONTINUED

FINANCE & INSURANCE

Despite suffering the second highest amount of reported fraud in 2016, the finance
and insurance sector saw a 62% decrease in the value of cases since the previous year.
Reported fraud in the sector fell from £567m in 2015 to £215m in 2016. Finance and
insurance also saw a 17% drop in the number of reported fraud cases, with the average
value of fraud also falling by 54% from £8.1m in 2015 to £3.7m in 2016.

The highest number of reported fraud cases within the finance and insurance sector in
2016 was in money laundering, which accounted for 34% of all cases in this sector. At
£98.9m, money laundering also accounted for 46% of fraud in finance and insurance by
value in 2016. This, however, shows a marked decrease of 51% from the previous year
when money laundering in finance and insurance was reported as £202m.

Mortgage fraud and third party fraud have also declined in value by 64% and 77%,
respectively.

SPLIT OF REPORTED FRAUD CASES IN FINANCE & INSURANCE 2016

MONEY LAUNDERING

OTHER

THEFT AND CASH FRAUD

MORTGAGE FRAUD

PROCUREMENT FRAUD

OTHER EMPLOYEE FRAUD

THIRD PARTY FRAUD

VALUE OF FRAUD IN FINANCE & INSURANCE

OTHER 2015 2016

THEFT AND CASH FRAUD

PROCUREMENT FRAUD

OTHER EMPLOYEE FRAUD

THIRD PARTY FRAUD

MORTGAGE FRAUD

MONEY LAUNDERING

0 50 100 150 200 250

£ Millions

INDUSTRY SECTOR FOCUS CONTINUED
In 2016, individuals (rather than corporate
entities) were again the most common
target for fraudsters. Frauds committed
against individuals accounted for 31% of
all reported fraud cases in 2016. However,
the value of reported fraud against
individuals showed a decline in 2016,
falling 38% to £172.3m – the first decline
since 2012. This means the average value
of frauds against individuals fell from
£1.8m in 2015 to £1.1m in 2016 – a decline
of 38%.
VALUE OF FRAUD AGAINST INDIVIDUALS
OTHER
MONEY LAUNDERING
COUNTERFEITING
NON-CORPORATE (INDIVIDUALS)
THIRD PARTY FRAUD
0 50
FEBRUARY 2017 | BDO FRAUDTRACK REPORT 07
NON CORPORATE (INDIVIDUALS)
The most common type of reported fraud committed against individuals in 2016 was
non-corporate fraud, i.e. another individual defrauding another individual, with 83 cases
reported. However, this type of fraud only accounted for 12% of the total value of fraud
against individuals. The largest type of reported fraud committed against individuals by
value was third party fraud i.e. individuals defrauded in their capacity as a customer (e.g.
a tradesman or a solicitor stealing from a client), accounting for 86% of the value of
reported fraud against individuals in 2016.
Despite fraud against individuals continuing to be the most common type of fraud,
this year’s results show an overall downward trend in the average value of frauds
suffered. This indicates that individuals, although continuing to be a target of fraud, are
potentially showing an increased awareness of scams and are being defrauded out of
lower amounts of money.
SPLIT OF REPORTED FRAUD CASES AGAINST INDIVIDUALS 2016
NON-CORPORATE (INDIVIDUALS)
OTHER
COUNTERFEITING
MONEY LAUNDERING
THIRD PARTY FRAUD
2015 2016
100 150 200 250
£ Millions
08 BDO FRAUDTRACK REPORT | FEBRUARY 2017

MOTIVE FOR FRAUD IN 2016

A fraudster’s motivations vary widely from case to case. The greed of a fraudster should
never be underestimated. This year’s results show once more that greed was the most
common motivation for fraud. Often the fraudster simply thinks that they are entitled to
whatever they stand to gain from their illicit conduct.

Sadly, our results show that it is often the case that the fraudster commits fraud in order
to satisfy a genuine financial need or to help them finance an addiction.

Whatever a fraudster’s initial motivations, it can often become difficult for them to stop
their fraud once they have started. Fraud schemes can become increasingly complex over
time to the point where the fraudster feels that it is impossible to stop without being
discovered. Other fraudsters can become financially dependent on the proceeds of their
fraud and therefore must continue in order to fund the lifestyle they, and often their
families, have become accustomed to.

In order to stop frauds from spiralling out of control, it is vital for all organisations to put
in place strong systems and controls to identify fraud at the earliest opportunity and
regularly test and review them. Frauds can cover long periods so these regular reviews
and checks are also essential.

MOTIVE FOR FRAUD IN 2016

TERRORISM

NEED/UNFORSEEN
CIRCUMSTANCES
OTHER

DRUGS/ALCOHOL GREED/LAVISH
LIFESTYLE

DEBT

GAMBLING
 FEBRUARY 2017 | BDO FRAUDTRACK REPORT 09

FRAUD BY LOCATION

SCOTLAND
36 28
2016 2015

NORTHERN 14 19
11 19 IRELAND
NORTH NORTH
2016 2015

EAST
73 63
2016 2015 WEST

2016 2015
47 39
2016 2015
YORKSHIRE

53 50 24 44
2016 2015 EAST 2016 2015
MIDLANDS

27 26 WEST EAST
2016 2015
WALES
MIDLANDS ANGLIA
20 7
2016 2015

159 175
38 47 WEST COUNTRY LONDON &
SOUTH EAST
2016 2015

2016 2015

2 2
NATIONAL 2016 2015
10 BDO FRAUDTRACK REPORT | FEBRUARY 2017

OUR SERVICES
FORENSIC ACCOUNTING

FRAUD & FINANCIAL DETECTION &

INVESTIGATIONS PREVENTION
If you have concerns about potential fraud We advise businesses on detection and
and financial crime or have discovered it prevention of fraud and financial crime
in your business, it is vitally important you including anti-bribery and corruption
respond quickly and get expert assistance. (ABC) and anti-money laundering (AML).
A rapid response could be critical to the
success of any investigation. We help organisations understand the
specific risks relevant to their business
Our specialist team of fraud and financial and develop best practice procedures and
crime experts has a range of backgrounds solutions which protect businesses against
in criminal investigations, forensic the threat of economic crime.
accounting and forensic computing
and are skilled at conducting sensitive Our services include:
financial investigations.
• Development of specific fraud
We regularly conduct large-scale, complex prevention measures – including
investigations for the UK's leading law advice on recruitment, codes of
enforcement, prosecution and regulatory conduct and systems and controls
agencies, as well as for corporations, • UK Bribery Act and FCPA advice
major banks, foreign governments and law
firms. We work closely with colleagues • Review of anti-bribery systems
from across BDO’s international network and risks
to provide expertise across the globe, no • Development of anti-bribery controls
matter where the issue is discovered or • AML and CTF advice
what business sector it is in.
• Development of Know Your Customer
Our investigation services include: and Politically Exposed Person
procedures
• Rapid response fraud investigation
• Pre-transaction due diligence.
• Investigations into accounting
irregularities and financial
misstatements
• Corruption and bribery investigations
• egulatory investigations (including
R
Skilled Person assignments)
• Asset tracing and recovery
• I nvestigations linked to contentious
insolvency matters
• Quantification of loss
• ackground checks and desktop
B
reviews
• Specialist advice to the board on
next steps.
 FEBRUARY 2017 | BDO FRAUDTRACK REPORT
OUR SERVICES
FORENSIC TECHNOLOGY
TECHNICAL EFFICIENCY,
EVIDENTIAL INTEGRITY
BDO has a dedicated and highly
experienced forensic computing team
with a personable approach and the
insight to overcome the most challenging
technicalities in data identification and
analysis.
We are at the forefront of forensic
investigation and review, with a wealth of
knowledge and technological expertise to
provide the right technical solution and
support to your case.
We have Forensic Technology capabilities
across the Globe. These partners and staff
are also experts on local regulatory and
cultural issues.
Our Forensic Technology services include:
• F orensic digital data collection and
preservation
• F orensic data analysis and Expert
opinion
• Corporate network systems
• Mobile device analysis
• loud-based data identification and
C
investigation
• ackup & tape archive system
B
restoration
• Structured data analytics
• Social network intelligence analysis.
11
E-DISCOVERY AND
E-DISCLOSURE
The BDO Forensic Technology team is very
experienced in the field of eDiscovery,
eDisclosure and digital litigation support.
Using state of the art data processing
tools we are able to present data for
review using the secure online review
platform ‘Relativity’. This means that
wherever you are in the world, as long as
you have access to the Internet you can
review your data.
These services can be provided from
beginning to end of a case, or where
required, we can prepare previously
captured data for review in other review
platforms hosted externally.
This might be used for a firm involved in
inter-company litigation, where external
lawyers are analysing data to determine
the strength, validity & extent of the
claim(s), or receiving disclosure from the
“other side” as part of an ongoing case.
NOTES
 FOR MORE INFORMATION:
KALEY CROSSTHWAITE
+44 (0)20 7893 3548
kaley.crossthwaite@bdo.co.uk
GAVIN WILLIAMSON
+44 (0)20 3219 4123
gavin.williamson@bdo.co.uk
HB009180
ABOUT FRAUDTRACK
FraudTrack is prepared by BDO LLP and is based on fraud cases
over £50,000 reported between 01/12/2015 and 30/11/2016.
The sources for the database are publically available and
include the UK’s national, regional and local press.
This publication has been carefully prepared, but it has been written in general terms
and should be seen as broad guidance only. The publication cannot be relied upon
to cover specific situations and you should not act, or refrain from acting, upon
the information contained therein without obtaining specific professional advice.
Please contact BDO LLP to discuss these matters in the context of your particular
circumstances. BDO LLP, its partners, employees and agents do not accept or
assume any liability or duty of care for any loss arising from any action taken or not
taken by anyone in reliance on the information in this publication or for any decision
based on it.
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number OC305127, is a member of BDO International Limited, a UK company
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© February 2017 BDO LLP. All rights reserved.
www.bdo.co.uk