Small Business News



Fraud – Businesses Continue to Suffer




Fraud affects hundreds of businesses every year, and can be financially damaging, stressful, time wasting, and even damage your image. Yet sadly the amount of fraud against both the government (VAT fraud) and businesses is still increasing.


New research from BDO Stoy Hayward shows that not only is fraud against businesses increasing; but that the larger the amount stolen, the less likely the fraudster is to be caught.


Frauds against businesses typically involve employees or directors abusing a position of trust, often in conjunction with an outsider. In most cases business fraud victims primarily focus on recovering the assets, preventing future frauds and minimising publicity. Only the ‘unlucky’ few fraudsters end up going to prison, where they will face a typical sentence of two-five years, even for involvement in multimillion pound deceptions. Research for BDO Stoy Hayward indicated that only 15 per cent of such frauds discovered lead to a criminal prosecution, although its own experience is that the proportion is even fewer.


Simon P. Bevan, the national head of BDO Stoy Hayward’s Fraud Services Team, said: "Sadly crime does often pay at the moment if you are a fraudster, which explains why large frauds are on the increase – this is a crime driven by greed, not need.


“When it comes to frauds against businesses, if you are discovered there is only a small chance of being prosecuted. When a fraud is discovered, all but the very largest are not a priority for the police given their limited resources. Businesses, not surprisingly, focus on getting the money back and protecting their reputations – so few of such cases, less than 15 per cent, result in a prosecution. In this case, the worst a fraudster will face is losing their job and having to repay most of their ill-gotten gains.


“Many fraudsters are laughing all the way to their offshore tax haven. Fraud is set to keep increasing as long as others see it is a safe route to making large amounts of money illegally, particularly in the case of VAT frauds, where a couple of years in an open prison is not going to deter anyone with a criminal mindset.


"Recent increases in the mortgage rate are likely to drive people who have borrowed highly into financial problems, and this may tempt some to commit minor frauds. However, this will not materially affect the number of larger frauds – ultimately people commit large frauds to feed greed, addiction or other major problems: people do not need to steal hundreds of thousands of pounds just to cover an increase in their monthly mortgage.”


Other findings from BDO Stoy Hayward’s FraudTrack include:


Business fraud has increased by 42 per cent to ₤538million, caused by 141 frauds over ₤50,000 in value. This compares to £379million from 139 frauds in the first half of 2006.


The main driver of this increase is the growth of VAT carousel frauds, whose value has increased to ₤468million for the first half of 2007 – already higher than the whole of 2006 (₤458million) and 220 per cent above the whole of 2003 (₤135million).


The Midlands has become the UK’s fraud hotspot with ₤312million (nearly 60 per cent of the total) being undertaken by businesses and people based in the region – typically through VAT frauds. In terms of the number of reported frauds, London had the most (a third), followed by the North East (16 per cent), the Midlands (14 per cent) and the North West (12 per cent).


Fraudsters can expect a light sentence. The average sentence (not time served) for frauds of over ₤50,000 is 3.05 years (1.98 including those who get non-custodial sentences), while the average sentence for the largest frauds (over ₤50million) is just over 6 years.


Greed is the main motivator – nearly three quarters of frauds are motivated by the desire for money or a lavish lifestyle (where a motive was disclosed).




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