Business Fraud: 5 of the most common types to look out for

Crime pays. In some instances, so much so that people can’t resist wrongdoing. But eventually, it becomes their downfall.

In a 2024 study by accounting firm PwC, it was revealed that 55% of business respondents reported procurement fraud as a widespread concern in their country. In fact, in the last two years, it’s been among the top three most disruptive economic crimes experienced by companies around the world (third to cybercrime and corruption).

Although just one type of fraud, for many, this has meant huge losses. Therefore, business fraud insurance is now more important than ever.

However, before we reveal how to protect your business in greater detail, let’s discuss the most common types of business frauds and who commits them.

Business fraud, in all its forms, causes massive business losses in the UK every year. In some cases, millions of pounds. And, while business fraud insurance can cover these losses, in many instances, education and prevention are key.

• 2023 UK fraud cases worth over £50,000 leapt 104% compared to 2022, increasing to the second-largest annual amount in the last decade (£2.3bn) – BDO FraudTrack 2024 report
  
• Fewer than one in seven fraud offences were reported to the police or Action Fraud during the same period –  BDO FraudTrack 2024 report
• 50% of UK businesses have been victims of fraud in the past two years – source: PwC
  
• Only 15% of fraud is uncovered during internal audits – a lower amount than through whistleblowing (16%) – source PwC
  
• 80% of those recorded for bribery had been in employment for 10+ years – Cifas Fraudscape 2024 report
• £72,000 is lost by businesses in over 51% of fraud cases – source: PwC

In a recent conversation with Terry Kingston, a Credit Insurance Specialist at Xenia, Vikshay Vijai, Fraud Insurance Manager at Allianz Trade revealed why he believes we are seeing so much fraud in the UK:

Fraud is on the rise. There has been a 10% increase in cases of fraud by internal criminals over the past five years. But the number of external fraud criminals is increasing much faster – there were 40% more cases compared to five years ago.

The amount lost to insiders is greater overall, but outsiders are beginning to catch up. Losses over the last five years due to external criminals has increased 56%, compared to 23% from insiders.

A construction company’s accountant convinced his employer to give him a second job – upgrading sports cars.

As a young man, who liked the finer things in life, he used this as a cover story to finance his own fleet of luxury cars and, eventually, luxury properties across Europe. Over several years, he misappropriated company funds to the tune of over £5 million to fund this venture.

How did he get away with this for so long? Well, he used accounts with the firm’s subsidiaries that’d been set up for specific construction projects and were left running to process sporadic run-off payments. He would raise fictitious invoices, which his employer paid believing they were genuine.

It wasn’t until he submitted two invoices within 48 hours that were worth £3.5 million (to finance a villa in Mallorca) that the flag was raised.

In the end, all assets were seized and the property was liquidated. However, the company was still millions out of pocket due to the depreciating value of the cars which were poorly maintained. That’s where business fraud insurance came in.

Which is more important: love or money?

A bookkeeper embezzled hundreds of thousands of pounds with the assistance of her estranged husband.

For many years, both profited from the embezzlement and the husband got many cash gifts and expensive presents from his wife. However, when they separated, he learned that his wife had taken a younger lover and gifted him both cash and a car.

The husband took offence to this and refused to grant his wife a divorce, threatening to report her unless she took him back.

In anger, the wife wrote a letter (which was later read in full at her trial) which berated her husband, detailed the fraudulently obtained gifts, and that he had no rights to them. Surprisingly, she also revealed where the money was hidden.

In July 2023, we reported on the typical perpetrators of internal business fraud and revealed that frequent offenders tend to be men between the ages of 35-45. They act on impulse to attempt theft, embezzlement, or misappropriation instead of following a long-term plan. They are inexperienced people and have only been with their company for a short period of time, taking small sums of money.

However, the biggest internal business fraud losses are inflicted by men in their 40s to mid-50s. These people tend to sit in senior management positions, are well-educated, and have been at their companies for at least 10 years. While these cases are less frequent, the value is higher.

We’ve heard many bizarre reasons as to why a criminal has committed fraud. However, the most common reasons are:

1. Gambling
2. Greed, and a desire for luxury
3. Financial pressures and living beyond their means

There are four common ways that business fraudsters get caught:

1. Internal processes – routine checks, audits, or reviews of anomalies
2. Whistleblowing – tip-offs from other employees, outsiders, or collaborators
3. Pure chance – good luck by the company
4. Confession – a guilty conscience or an attempt to reduce penalties

Following the video, Vijai added:

“Accounting firm BDO said that £2.3 billion worth of fraud was reported in the UK last year making it the second-biggest year of fraud in the last two decades.

“We believe that fraud is something that can impact any business, at any point in time, and unfortunately, some businesses suffer worse than others.

“It’s absolutely essential for every business to consider protecting themselves adequately against a threat that constantly looms over their heads.”

There are numerous ways to help prevent crime, including:

• Fostering a trust-based corporate culture with clear guidelines, values and feedback.
• Providing good working conditions, with employee support and equal opportunities.
• Putting control and compliance systems in place.
• Training and systems to detect anomalies.
• Defining safe whistleblowing channels.
• Running regular risk assessments and encouraging ongoing vigilance.
• Reviewing job applicants thoroughly before offering employment.

Read more: How businesses are protecting themselves against employee fraud and The importance of fraud prevention for businesses

However, even the most rigorous preventative measures will not completely remove the risk of fraud. Therefore, make sure you’re always protected with our fraud protection cover.

As Vijai says:

“Since purchasing our fraud cover, clients have said they are much better able to focus on what they do best whilst maintaining peace of mind that they are always safe rather than sorry in the fight against fraud.”

Get in touch for a comprehensive quote that’s tailored to your company size, budget, and level of risk.

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