Mixed results of VAT fraud clampdown

Customs and Excise's crack-down on large-scale VAT scams is starting to take effect in the UK, but fraud has increased three-fold over the past five years, according to KPMG.

The consultancy firm's latest Fraud Barometer report found that fraud rose by 14 per cent in 2004, while the value of fraud committed dropped by 12 per cent. A total of 174 cases involving frauds of £100,000 or more came to court last year, with a total value of just under £330m, compared with 153 cases in 2003 worth £374.5m.

Management and employees were to blame in a third of all cases; KPMG found there is a growing problem of workers processing payments to bogus firms or adding fake workers to the payroll. Stealing or forging company cheques is also a popular way of committing fraud.

"The total value has dropped because of Customs' efforts to tackle VAT carousel fraud, which is prevalent in IT and telecoms," said David Alexander, fraud investigation partner at KPMG.

"However, the fact that fraud is on the increase is worrying. The main drivers are pressures exerted by companies to maintain share price and standing, and personal pressures. With UK personal debts passing £1 trillion, this is set to continue.

"Companies are more aware and are taking fraud seriously, but they need to have measures in place to prevent, detect and investigate fraud, and develop an overall anti-fraud strategy."

Eddie Pacey, director of credit services at distributor Bell Microproducts Europe, agreed that fraud is rising in the UK.

"This could be because more companies are recognising and recording fraud than before, but it is definitely on the increase," Pacey said.

"It is not just external fraud that UK firms have to watch out for, but also internal fraud by employees and attacks from competitors. I'm also seeing a rise in the number of company hijackings, which is a worrying sign."

sara_yirrell@vnu.co.uk