Soaring rise in fraud and there’s more to come, says BDO
REPORTED fraud in Yorkshire leapt by 111% to £280m for 2009 while nationally it broke the £2bn barrier.
Research by BDO shows that the amount lost by businesses and the public sector to larger frauds increased last year by a startling 76% during the recession with both the number and size of frauds increasing dramatically.
The £147m increase in Yorkshire and the North East represents the second largest hike in reported fraud levels nationally with the region behind London and the South East, which experienced a 117% increase since last year.
However, BDO is predicting that the rise is just a precursor of things to come and warms that annual reported corporate fraud could be as high as £5bn in a couple of years.
Simon Bevan, head of fraud at the accountants based in Leeds, said: “2009 saw the steepest increase since our report began seven years ago, with the average value of each fraud now more than £5m compared to £1.8m in 2003.
“Based on my experience of the two previous recessions, I expect that reported fraud will treble over the next two years. There has always been a lag effect, with reported fraud continuing to rise for at least a couple of years after businesses start to come out of the recession.”
Mr Bevan said a large part of the increase would be a “tidal wave” of fraudulent borrowing particularly through use of over-valued properties as security for loans.
He continued: “Fraud has always been a risk to businesses, but
during the good times often management fails to question good news.
We see it time and time again, with businesses being cavalier with regard to risk in boom times, but wondering where it all went wrong when the rug is pulled from under their feet by a recession.
“For instance, in several cases we have investigated this year, we have seen seemingly profitable enterprises falling flat when questions are asked about a particular deal or contract. Sadly, the best salesman may turn out to have been the best fraudster – in collusion with the best customer – to bill fictitious sales which are reversed after the accounting year end.”
BDO’s FraudTrack predicts that managment fraud will rise 48% to £503m in 2009 from the previous year.
The report shows that fraud by mid-level managers is frequently not for direct personal gain, but just to keep their jobs and income stream.
However, the consequences of this can be dire with boards making investment and divestment decisions based on false data.
The financial sector continues to head the league table with a massive 70% increase on last year’s figures to £1.3bn.
Frauds involving the ‘misuse of assets’ (typically other people’s investments, property and savings) has increased 325% from £58m to £250m.
Greed continues to overwhelmingly be the number one motive
for fraud in the UK, accounting for more than 80%of frauds in 2009.
From investigating hundreds of frauds in recent years BDO finds that sadly, it is often the most trusted people in an organisation that might defraud that business.
