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Courts expect ‘tsunami’ of Covid-driven fraud cases

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Fraud has been ‘hidden’ during the pandemic (pic: Terry Murden)

Scotland’s courts are facing a ‘tsunami of fraud cases’ over the next year as courts deal with a backlog of claims and a potential new wave driven by the Covid-19 pandemic.

The closure of the Scottish courts because of lockdown led to a halt in prosecution of high value cases – those with losses of £100,000 or more – during the first half of the year.

For the first time in the history of the report, there were no high value cases in that period.

This compared to four cases totalling £1.2 million during the same six months last year.

The findings emerged in KPMG’s bi-annual Fraud Barometer. 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.

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“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 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, 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.

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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.”

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