Fraud rises in the Midlands, as businesses get to grips with billion-pound problem

Fraud is a billion-pound problem for UK businesses. While the oddities of COVID-19 seem to have reset themselves in the last 12 months – with reported fraud increasing by 2000% (£9.5 billion) from 2000 to 2001 – it remains a significant issue for companies.

Yes, the total number of fraud cases may have fallen; the reported fraud value has also decreased significantly by £8.9 billion (89%), with The Crime Survey for England and Wales (CSEW) stating that “fraud has now returned to pre-coronavirus pandemic levels”, suggesting that “[2020/2021] increases may have been specific to the coronavirus pandemic period rather than a sustained change in trends”.

But, according to our latest Fraudtrack 2023 report, outside of London and the South East – the number one hot spot for reported fraud in 2022 - the Midlands had the most significant percentage increase in reported fraud value, with a rise of just over 450% (£96 million). It accounted for 11% of the total fraud reported in 2022, compared with less than 1% in 2021. In fact, of the five highest value frauds committed in the UK last year, the fourth largest (a £100 million tax fraud) was committed in the Midlands – the main driver for its accension in the rankings.

Unsurprisingly, an overwhelming number of Midlands mid-sized businesses surveyed (85%)¹ as part of our FraudTrack report, experienced fraud during 2022, with 63% of companies reporting that they feel somewhat or significantly more exposed to fraud since the cost-of-living crisis has taken hold.

What’s more, losses expected to be recovered were between £150,000 and £250,000 for more than a quarter of surveyed Midlands businesses (26%), with almost one fifth (19%) of businesses falling victim to fraudsters on more than one occasion during the year.

While the value of fraud incurred is significant, nearly a third (32%) of impacted Midlands companies surveyed said they expect to recover less than £50,000.

Our Fraud Survey monitored trends at 500 mid-sized UK firms throughout 2022. It found that fraudulent activity in the region predominantly involved collusion between internal and external individuals, compared to frauds committed against companies by their own employees, and those externally generated. This is reflected by the overwhelming majority (84%) of respondents stating that their exposure to fraud has increased somewhat or significantly since home or hybrid working has become commonplace.

The UK’s forthcoming Economic Crime and Corporate Transparency bill is, for many, an opportunity to address some of the issues surrounding fraud. This includes the Government introducing a new corporate criminal offence for economic crime such as fraud. Under the current proposals, it will be made easier to prosecute companies for fraud because prosecutors will only need to demonstrate that an organisation lacked “reasonable” or “adequate” controls to prevent the wrongdoing of its leadership or staff.

Despite the proposed legislation and the prevalence of fraud (it represents the largest category of crime in England and Wales), most surveyed companies in the Midlands (82%) said economic conditions will limit their investment in fraud detection and prevention tools over the next 12 months.

But the reality is, for a third consecutive year an overwhelming proportion of mid-sized businesses are being targeted by internal and external fraudsters, many of whom will struggle to absorb the financial losses inflicted during these particularly challenging times.

More needs to be done to investigate, expose and quantify the devastating associated costs to the UK economy. What’s more, the latest legislative developments to make failure to prevent fraud a criminal offence reinforce the need for Midlands organisations to take action to re-evaluate their internal controls in order to minimise their exposure to financial crime, including internal wrongdoing.