KPMG: Insurance scammers and rogue tradesmen help to drive £1.2 bn in UK Fraud during 2018

Graham Cochrane

While professional criminals were responsible for three of the £4.6 million worth of cases coming to Scottish courts, the far greater threat came from employees and management, who perpetrated 11 of the 16 cases.

Details of cases to reach Scotland’s courts during this period include:

• A junior clerk embezzled £600,000 from a financial services company over 14 years to fund lavish holidays across the world, including a nine-week trip to the Far East, cruises to the Caribbean and the US. The junior clerk identified policies where payments had been returned or where the policyholder had died and diverted payments to himself.

• An accounts assistant for a biotech firm stole £116,000 to buy his terminally ill mother a house. Sums that were labelled refunds to the NHS were funnelled into bank accounts controlled by himself and his mother. He was caught after a tip off and he has been forced to sell the house to repay the funds which were embezzled.

Graham Cochran, forensic director at KPMG in Scotland: “Scotland’s fraud landscape has changed dramatically over recent years. The pace of innovation has made complex, technology-driven scams more accessible to fraudsters, and yet there still remains a threat from insiders. Businesses need to be aware of the insider threat and recognise that fraud is not something which only happens to other organisations.”

The National Story

The number of fraud cases reaching courts in the UK rose by 78 per cent in 2018 according to research by KPMG Forensic.

KPMG’s Fraud Barometer, which records cases of alleged fraud with a value of more than £100,000 found that 453 cases with a total value of £1.2 billion were coming to Court across the UK last year. The barometer includes one supercase (a case greater than £50m), but there are a large volume of smaller value cases between £10 million and £50 million covering areas such as evasion of duty, VAT fraud, investment fraud, loans and mortgages, counterfeit goods, pensions and social benefits.

James Maycock, forensic partner at KPMG, said: “In the round, fraud was a diversified portfolio this year. Fraud levels in the UK continue to rise as criminals look for new ways to exploit both public sector and private sector fraud opportunities.  Sophisticated technology and social engineering have become closer to the norm for ‘professional’ criminals - for example, the number of cases of ‘account takeover’ frauds in the Fraud Barometer has more than doubled from 13 cases to 34, with diversion fraud, identity theft and push-payment fraud being the most common methods. Getting the large, often cross-border and complex frauds to court is both time-consuming and resource intensive. This places much more emphasis on businesses and consumers to protect themselves from a growing number of fraudsters who will take advantage given the opportunity.”

Insurance scammers drive fraud value up

The barometer identified a worrying surge in the value of insurance frauds hitting courts in the last 12 months, more than was seen in the period 2014 – 2017 combined.  Overall, £17 million of alleged insurance fraud appeared in UK Courts over 19 cases in the last year, compared to 24 cases with a combined values of £11.9 million in the years 2014 – 2017. Cash for crash, personal injury scams and faked death claims featured multiple times in the list of frauds coming to Court.

One case saw a man who masterminded a £4 million bogus insurance claim scam jailed for 9 years. The scam involved orchestrating 250 collisions with innocent drivers, mainly on mini-roundabouts, making claims against dozens of insurance companies for fabricated injuries or vehicle damage. The judge was very clear in stating that all insurance customers will pay for the fraud through higher premiums.

James Maycock observed: “Insurance fraud has a massive impact on many people: the victims, insurance companies and of course everyone else who is left to pick up the cost through higher insurance premiums. Despite the progress that has been made, particularly with the number of people now using in-car technology to record events in real time, fraudsters will continue to come up with new and improved ways to scam the system.

“Insurance scams are no longer the domain of claiming for a ‘lost’ camera on holiday, but like many areas of fraud have turned into a very lucrative income stream for professional criminals.  The increase in professional insurance scammers coming to court goes to show the complexity of the task that the industry is tackling.  Fraudsters will move quickly to new methods and exploit any area they can, staying ahead of them is a difficult challenge.”

Rogue tradesmen have their eyes on the big prize

In another emerging trend, 2018 saw a large increase in the value of fraud cases coming to courts involving rogue tradesmen.  Historically the vast majority of fraud cases involving fraudulent repairmen, builders and roofers have been below the £100,000 threshold to appear in the Fraud Barometer, but the value of the frauds taking place in this area is growing rapidly as gangs target the vulnerable for as much as they can squeeze.   In 2018 there were 18 cases with a value of £7m, where mostly elderly homeowners were targeted and scammed of their life savings.

In one case, a number of cowboy builders, who took turns in defrauding an 83-year-old woman until they had conned her out of her £290,000 home and more than £100,000 in cash, were jailed for total of 14 years. One of the gang defrauded her out of £28,500 for ‘underpinning’, whilst fake work was done to rafters for £29,000. Eventually one of the conmen convinced her to settle her bill by selling her £290,000 house to him for just £25,000, telling her that she could live in the house for the rest of her life while he took care of it. She had lived alone at the address where she’d resided all her life and had been left the house by her parents.

James Maycock said: “Whilst many fraud attacks take place with a perpetrator behind a computer screen who never actually gets to meet a victim, frauds by rogue traders are done very much face-to-face, where the fraudster will often meet or be welcomed into the home of their victims.  It is often elderly people who are targeted, many spending their life savings on sub-standard, dangerous work that never gets completed. 

“The personal nature of this fraud often leaves victims feeling very distressed and foolish, and many will never recover financially or emotionally from the deceit.  There are things people can do to protect themselves and their vulnerable friends and relatives from rogue tradesmen, particularly never parting with money up front, not welcoming uninvited callers into homes (even if they have ‘spotted’ something that needs fixing), and asking for ID and checking if they are registered tradesman.”

Customs under attack as Brexit looms

Around £89 million of duty evasion was recorded in the Fraud Barometer for 2018, the highest value recorded, with the number of fraud cases relating to tobacco products more than doubling in 2018 from 16 to 41.

Cross-border smuggling is also one of the largest fraud types coming to Court – the most common goods were counterfeit pharmaceuticals and pirated digital media.

MTIC or “carousel” frauds, complex frauds which took advantage of a change in multi-jurisdictional tax laws, have been one of the biggest drivers of fraud recorded in the three decades of the Fraud Barometer, and have cost the UK public finances an estimated £25-30bn. With new customs arrangements potentially coming into play post-Brexit, the potential for professional criminals and misguided businesses to exploit or abuse untested technology or tax collection mechanisms is not insignificant.

James Maycock added: “How Brexit will impact fraud levels is yet to be seen, but new systems and new landscapes, such as new tax and customs arrangements, have in the past opened new and lucrative loop holes ripe for the picking from unscrupulous criminal gangs and businesses looking improperly to cut their costs.”