Tsunami of fraud predicted due to COVID-19 closing court system

Damien Margetson

The North West region saw a marked decrease in the volume and value of fraud cases coming to court during the first half of 2020, as measures introduced in response to the COVID-19 pandemic led to the closure of many court operations and diversion of cases.

KPMG’s bi-annual Fraud Barometer, which measures fraud cases with losses of £100,000 or more reaching the UK courts, found that only 12 cases with a combined value of £5.2m were heard at courts across the North West between January 1, and June 30, compared with 26 cases totalling £29.2m during the same period last year.

Damien Margetson, head of forensic at KPMG in the North West, said: “With many of our regional courts closed temporarily during the pandemic, it is perhaps reasonable to assume the true extent of fraud committed across the region has been somewhat 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 the UK enters what is likely to be a very challenging economic climate which will only drive fraudsters to take full advantage.”

High profile cases reaching the region’s courts during this period include:

  • A former policeman from Greater Manchester who ran an online business selling set-top boxes and software which gave people illegal access to subscription TV channels such as Sky Sports and the latest films and dramas;
  • A Cheshire benefits cheat who pretended to be disabled and used false identities to fraudulently claim more than £1 million;
  • A council worker who, via a ‘sophisticated and devious’ system, stole more than £260,000 which was meant to be paid to care homes.

Nationally, KPMG’s Fraud Barometer reveals 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.

Almost £460m of alleged fraud hit UK Courts in the first six months of the year, up by 44% compared with 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 with last year, from £319m in 2019 to £260m in 2020.

The Fraud Barometer 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 with 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, 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.”