KPMG: Scotland sees complete halt in prosecution of fraud cases during first half of 2020
The closure of courts due to the coronavirus lockdown led to a complete halt in the prosecution of high-value fraud cases in Scotland during the first half of 2020, according to data from KPMG.
The firm’s bi-annual Fraud Barometer measures fraud cases with losses of £100,000 or more reaching the UK courts. For the first time in the history of the report, zero cases were registered between 1 January and 30 June in Scotland, compared to four cases totalling £1.2 million during the same period last year.
The finding has prompted a warning that Scotland’s courts could witness a ‘tsunami of fraud cases’ over the next year as courts face a backlog of cases and a potential new wave of fraud driven by the COVID-19 pandemic.
Annette Barker, head of forensic at KPMG in Scotland, said: “With many of Scotland’s courts closed temporarily during the pandemic, it’s reasonable to assume the true extent of fraud committed across the country has been masked – not least as previous crises tell us that increased financial pressures on individuals can often drive increased criminal behaviour. Looking ahead, we certainly expect the fallout from the uncertainty caused by the pandemic to dramatically accelerate the levels of fraud hitting businesses, government and individuals.
“It is therefore absolutely vital that businesses and consumers remain vigilant as Scotland enters what is likely to be a very challenging economic climate which will only drive fraudsters to take full advantage.”
Elsewhere across the UK only 76 cases of alleged fraud were heard in Courts in the first half of 2020 down from 217 cases prosecuted during the same period last year. This 65% decrease reflects the significant impact of the COVID-19 crisis on law enforcement.
Almost £460m of alleged fraud hit UK Courts in the first six months of the year, up by 44% compared to the same period in 2019. One film piracy case, which if successful would have cost the industry an estimated £200m, nearly doubled the value of fraud committed to July 2020. By excluding this outlier, the data demonstrates a significant decrease in the value of fraud cases compared to last year; from £319m in 2019 to £260m in 2020.
The Fraud Barometer, which records fraud cases, excluding bribery penalties, coming to UK Courts with a value of £100,000 and above, noted cases of embezzlement, fraudulent trading, tax, loan and mortgage, benefit fraud and account takeover topping the list. Fraudulent evasion of duty, which is expected to boom in the near future, saw a significant drop compared to previous years in case numbers.
In addition to the COVID-19 pandemic, Brexit returns as a high risk for businesses to urgently address their supply chains. They pose an inherent fraud risk as the transition from lockdown to the new reality may cause existing controls to be overridden.
The Fraud Barometer recorded a number of cases which highlight the elevated risks associated with tech-enabled fraud and remote working. In one case, a head of finance, stole almost £3m from his employer by setting up two fake payments to himself by substituting his own bank details in place of those of HMRC.
The data also recorded that the volume of embezzlement cases during this time overshadowed those committing fraudulent trading, misselling and misrepresentation by 150%. Fraudsters were stealing from company, client and bank customer accounts as well as charitable funds and committing cash theft.
In one case, a woman claimed she had no idea that her husband stole almost £1.5m from his employers over a period of approximately six years. The man used bogus invoices from fake companies to transfer thousands of pounds into his wife’s bank accounts.
Roy Waligora, KPMG UK head of investigations, added: “The COVID-19 environment has led to increased financial pressures on individuals and organisations leading to more opportunities to commit fraud. This is likely to lead to further risk of financial misreporting and of misconduct and fraud in traditional hot spots such as procurement and supply chain. Given the elevated pressure on the Courts, business leaders should assess fraud risks and remind employees of anti-fraud policies and whistle-blowing channels in order to reduce the risk of loss.”