Fighting fraud

aksaroya —  25 March 2013 — 2 Comments

circuit board

By Peter Williams, accountant and journalist.

One of the comforting lies we tell ourselves as a society is that we take fraud seriously. Every politician in power at some point promises a crackdown on cheats and swindlers. Whether or not there is any crackdown, it is a story to tell ourselves so that the honest neither revolt nor despair.

Before we can tell ourselves that we are fighting fraud hard, fraud has to be established, even demonised, as a serious problem. So our thanks must go to those who do surveys such as BDO with its recent exposure on tax fraud in the UK. The firm’s Fraud Track showed the EU is losing €33bn a year in VAT fraud, with the UK one of the highest losers.

Just imagine what €33bn would buy Europe! In fact, no need to imagine, as BDO helpfully points out that if all the money lost to VAT fraud in the UK went to HM Treasury it would pay for the winter fuel allowance, free TV licences and compensation for pensioners on pensions credit (£1.4bn), with enough left over to build 17 new hospitals.

Clearly something needs to be done. Step forward HMRC and the Treasury ministers to tell us what they are doing. Two pieces of excellent news: first, governments is using social media, in this case Flickr (a photo sharing website), to display the faces of 30 top tax criminals of 2012, sentenced to a combined total of 155 years and 10 months behind bars. It’s the 21st century equivalent of displaying the heads of executed traitors. Whether it is a strong deterrent is hard to say. Treasury minister David Gauke said: ‘Most people play by the rules and pay what they owe, but HMRC is cracking down on those who don’t’.

This, we are told, is all part of the government’s £917m investment to tackle tax evasion, avoidance and fraud from 2011-12 and aims to raise an additional £7bn a year by 2014-15. The chances are that it won’t. Any finance professional who has been around for an economic cycle or two will have heard it all before. Waste, fraud, red tape – every government comes in determined to put them to the sword….and fails.

Take the VAT fraud highlighted by BDO. The material issue here is so called missing trader fraud and carousel fraud which involves a series of contrived transactions to create large unpaid VAT liabilities and fraudulent claims. We’ve known about it for at least a dozen years and, despite Gauke’s words, appear to be on the verge of giving up the fight. Back in 2006, Edward Leigh MP, chairman of the Public Accounts Committee, said missing trader fraud was costing the UK £2bn to £3bn a year despite efforts going back over six years to stem it.

Wind forward to 2013 and BDO says the government is finding the fraud difficult and time consuming to prosecute and it is not a main focus of Crown Prosecution Service policy. It says the Dutch and German governments provide examples of how to make progress – mostly by throwing resources at the problem.

Something more than rhetoric is required. It is clear that as a society we need to fight financial crime. It is equally clear we need to be honest in assessing how we are doing in that task.

This article first appeared in Accounting and Business, UK edition, February 2013.

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2 responses to Fighting fraud

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