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Crackdown exposing more cases

Slack controls leave companies easy targets of fraudsters

FraudA crackdown on fraudsters has revealed that companies failing to control their financial systems continue to be among the main targets.

False mortgage applications made up most of the cases pursued in Scotland last year. Three involved mortgage frauds in excess of £1m.

But investigators found that individuals preying on pensioners or defrauding their own companies were among those brought to court.

There was a sharp rise in payroll fraud and other examples of theft which exposed weaknesses in company financial control systems.

The number of cases involving big sums actually fell from 15 to 13 but the sums involved rose 26% from £6.8m to £8.6m.

KPMG’s bi-annual Fraud Barometer says the number of fraud cases involving financial institutions made up the majority of cases – increasing from £2m in 2013 to more than £6.7m in 2014.

More than a third of cases coming to Scottish courts involved employees defrauding their own organisations, while the latest figures alsobshow that three-quarters of total losses suffered were to con artist customers, mostly through mortgage fraud.

Ken Milliken, KPMG head of forensic, Scotland, said: “Individuals who gave false information to acquire mortgages are now paying the price as banks and then police look to crack down on mortgage fraud.  The numbers do not mean that mortgage fraud is on the increase but rather that investigation and enforcement activity is on the increase.

“There are still many embezzlers and other con artists within this year’s figures, opportunistically preying on the vulnerable or taking advantage of weaknesses in company controls.  Because there will always be people willing to break the law for their own ends, the fight against fraud will never be won.”

Cases coming to court in Scotland in 2014 include a bogus sheep farmer and convicted fraudster who was jailed for four years after using someone else’s identity to persuade a finance firm to lend him £400,000 to invest in a phoney hotel and golf course scheme in Fife.

In another case, a car salesman from Dumbarton was jailed for 20 months after embezzling almost £120,000 from business customers. He used the money to pay off gambling debts amassed via online betting websites.

The investigators said that some of the most notable cases revolve around conmen abusing positions of authority, “making it clear that organisations need to pay attention to staff in positions of influence”.

The number of cases involving staff with authority over finances rose from 3 to 29 during the course of the year – with the value of their frauds jumping from £600,000 to £11.7m.  Of particular note were individuals responsible for processing staff salaries, as the amount of money lost through payroll fraud climbed from £1.2m in 2013 to £6.3m during 2014.

One notable case involved an individual who invented fake companies and imaginary staff so that he could transfer £3m worth of false payments and wages into 20 bank accounts, to fund a gambling addiction and to send money to his fiancée in Thailand.

Cowboy traders were involved in  14 incidents, worth a total of £5.7m, and included professional criminals duping consumers into buying stolen, counterfeit or non-existent goods, investing in non-existent assets and charging for unnecessary household repairs.

In one case, twin brothers defrauded more than 70 people out of £1.6m.  Their victims lost up to £110,000 each, after they were persuaded to invest in properties in Bulgaria and Cape Verde. The money was used to repay the fraudsters’ business and personal bank overdrafts as well as on shopping sprees.

Although the economy has improved during the past 12 months, fraudsters have also continued to prey on fears about long-term financial stability.

A number of schemes highlighted in the analysis of the data show that victims are tempted by the prospect of building their income streams, with ‘investment fraud’ cases worth a total of £216m, making investors the largest victims of fraud in 2014.  A year ago, with take home pay still suffering, the same fraud cases only accounted for £168m.

One case centred on two fraudsters who used their reputations as trustworthy pillars of the local community to create what became known as the ‘G&T’ scheme because of lavish drinking parties held to celebrate allegedly successful investments.

Individuals were persuaded to hand over £3,000, invited to parties where some were presented with cash returns totalling more than £20,000, and tempted to invest more – creating a £21m black hole.  Another con focused on 14 pensioners who were targeted with emails claiming they had won millions of pounds in a non-existent lottery.  They were instructed to pay fees to release their ‘winnings’, with losses totalling £900,000.

Hitesh Patel, UK forensic partner at KPMG, said: : “Preying on peoples’ fears, or worse, creating fear where it doesn’t exist, is a tactic that conmen adopt when times are tough. They recognise that immediate physical and long-term financial safety are highly emotive concerns that can illicit ill-thought out reactions from victims.

“Pensioners in particular are seen by fraudsters as easier targets than others. Increased freedoms around pension investments mean they suddenly have their life’s savings available to them, but often are unclear where best to keep it safe.”

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