Fraud in Wales has fallen by three quarters compared to this time last year. Only three cases totalling £1.6m have been taken to courts in Wales so far this year, compared with 12 cases totalling £9.9m for the same period last year.

While all perpetrators have been men, there is no clear pattern to the type of person committing the crime, nor is there a ‘typical’ victim. This differs to the first half of 2019, when professional criminals in Wales were involved with more fraud cases seen by courts than any other perpetrator type.

Damian Byrne, Forensic lead for KPMG in Wales, commented:

It’s interesting to see such a significant drop in fraud cases compared to this time last year. However, rather than being a sign that businesses and members of the public are taking more measures to prevent them from being victims to fraud, the drop is more likely to be down to a delay in cases reaching the courts amid the COVID-19 pandemic.

Consequently, we expect to see a surge in fraud cases reaching courts in the second half of the year.  It is absolutely vital that businesses and consumers remain on high alert for fraud as the UK enters what is likely to be a very challenging economic climate, which will encourage fraudsters to take advantage.

Case studies to reach the region’s courts during this period include:

• A 39-year-old trusted employee allegedly “frittered away” more than half a million pounds of his employer’s money on gaming websites, by submitting false invoices totalling more than £500,000.
• A professional taxman who wrote a book about how to take on HMRC has been convicted of a £120,000 fraud. The 68-year-old man allegedly submitted inaccurate tax returns and used his decades of experience working as an accountant to hide his deceit from HMRC.
• A rogue tradesman was found guilty of targeting the vulnerable, persuading victims that their driveways needed to be repaired, while charging for excess materials. It is believed the 60-year-old man benefited to the sum of £905,000 from his criminality.

The National Story

KPMG’s Fraud Barometer reveals that only 76 cases of alleged fraud were heard in courts across the country 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.

Work from home risks

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, mis-selling 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, said:

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.

Spotlight on industry

The industry most impacted according to the data was commercial businesses which saw a drop of 80% in value and 72% drop in volume, from 63 cases valued at £137m last year to 18 cases valuing approximately £27m in 2020 (excluding the one case on film piracy).

Government saw 65 cases worth almost £55m in 2019 drop to only 19 cases with a value that ballooned 42% to £78m in 2020.  Tax and benefit fraud accounted for 13 of the 19 cases in 2020 with criminals stealing from the public purse to the tune of £21m.

Financial institutions, which recorded 19 cases at a value of almost £19m in 2019, this year saw 11 cases valued at over £82m; representing a 331% increase in value.  The main increase was due to one supercase currently being tried at the High Court in London involving a loan scheme fraud for £72m which centred on the sale of mortgaged tankers for scrap.

Fewer court appearances indicate a calm before the storm

COVID-19 measures led to the closure of many court operations and diversions of cases therefore impacting the volume of cases heard by the courts.

No one is under the illusion that actual fraud has decreased, and given the Government’s Coronavirus Job Retention Scheme is due to remain accessible to the public until October, it is likely that more fraud cases will emerge as the scheme unwinds. This is evidenced by the HM Revenue & Customs' (HMRC) first arrest in relation to furlough fraud in July 2020. It is understood that in May, the HMRC had received up to 1,900 reports of alleged furlough fraud claims which are due to be examined in the coming months. The pressure on courts is also likely to increase demand for alternative dispute resolution options such as arbitration.

Roy Waligora concluded:

While we get to grips with the ‘new normal’, we are likely to see a lot more HMRC activity where government aid schemes have been abused. This will place an additional burden on organisations to ensure that their programmes complied with the rules.

We must also keep in mind that fraud data dropped drastically because court appearances were down as authorities struggled to keep pace during the crisis. Although the numbers indicate less activity, fraud has not gone anywhere, and as the UK establishes more special courts to address backlogs, we are likely to see a tsunami of COVID-19-related fraud cases.