Fraud likely to rise in slump

Feb 2 2009 by Karen Dent, The Journal

CASES of large scale fraud worth £23.45m were dealt with in North East courts last year and the figure is expected to grow with the impact of the credit crunch.

Accountancy giant KPMG said fraud neared record levels nationally during 2008, with cases valued at more than £1.1bn reaching court – the second highest in the 21 years since it began recording the figures for its Forensic Fraud Barometer.

The North East experienced the fourth highest level of fraud out of seven UK regions. The table was topped by London and the South East, which accounted for half of the national total.

Although professional fraud gangs accounted for many of the cases, there was an increase in individual crimes. More than £300m of fraud nationally was committed by company managers, staff and customers – three times as much as in 2007.

Most fraud committed since the economic downturn began has not yet reached the courts. In the recession of the early 1990s, the peak year for fraud cases coming to court was 1995.

Sara Smith, from KPMG’s forensic practice in Newcastle, said: “As the economic downturn takes hold and organisations look increasingly closely at their operations it is very likely that more fraud will come to light.

“Already though, the signs are there – globally in the last 12 months alone at least three alleged multi-billion pound frauds have been uncovered.”

The worst hit sector was financial services – which saw 63 cases valued at £388m – more than 10 times the value in 2007. Internal and external company fraud shot up fivefold from £24m and 45 cases in 2007 to £125m and 54 cases last year.

However, a drop in carousel fraud, where VAT is fraudulently claimed back on items, mean the Government lost less to fraud, with the value of cases falling from £833m in 2007 to £207m in 2008.

Mark Firmin, restructuring partner at KPMG in Newcastle, said: “Our restructuring teams are seeing far more fraud than was the case just two years ago. With falling revenues and often high levels of debt, managers of businesses may be tempted to massage figures to paper over the cracks in the hope that operational changes can be made to improve performance before creditors look more closely.”