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Corporate fraud set to rise as recession sets in
Fraud is set to rise over the next two years as the economic climate worsens, accounting firm KPMG has warned.
The firm’s “Fraud Barometer” found that 239 cases of serious fraud, totaling £1.1bn, came to court in the UK last year. This is the second highest level recorded since the barometer began 21 years ago, only eclipsed in 1995 following the recession of the early 1990s.
The financial services saw the highest volume of fraudulent activity last year with 63 cases, totaling £388m. In comparison there were only 36 cases in 2007 which, at £37m, signals a ten-fold increase in one year. As the recession bites the rise is predicted to continue, with both an increase in fraudulent activity and more fraud coming to light.
Fraud investigation partner at KPMG Forensic, Hitesh Patel, said: “These figures are bad enough in themselves, but I fear the trend for the next couple of years will be even worse. As the global economic downturn takes hold and organisations look ever more closely at their operations it is very likely that more fraud will come to light so that the real impact of the credit crunch on fraud is yet to be fully felt. Already though, the signs are there - globally in the last twelve months alone at least three alleged multi-billion pound frauds have been uncovered. ”
As vast numbers of companies head for insolvency managers, who are likely to find themselves under huge pressure, may be tempted to “massage” figures. Mr Patel explained that the current economic situation “leads ordinarily honest people to commit fraud out of desperation”. This may go some way towards explaining why the value of fraud for which managers, employees and customers were prosecuted in 2008 was three-times that of the previous year.
And KPMG warns that the actual figures may be much higher then their report indicates. Fraud cases due to come to court and evidence of fraudulent activity yet to emerge will inevitably plump up the current figures. It anticipates that the sorts of large fraud witnessed in the 1990s recession, such as pyramid schemes, will be uncovered during the current recession. Much of the fraud which will make up the final figure is, according to KPMG, yet to be committed.
