Fraud Breaks the £2billion Barrier according to BDO’s FraudTrack

London and South East see rapid increase in the last year, experts predict it is set to treble in the next three years

Reported fraud in the UK exploded in 2009 and broke the £2billion barrier for the first time according to new research from accountants and business advisers BDO LLP. The amount lost by businesses and the public sector to larger frauds increased last year by a startling 76 per cent during the recession, with both the number and size of frauds increasing dramatically. The report showed that larger frauds predominate on London and the South East, accounting for 77% of all reported fraud in the last year. BDO LLP (one of the UK’s largest teams of specialist fraud investigators) predicts that, unfortunately, this rise is just a precursor of things to come, and warns that annual reported corporate fraud could be as high as £5billion in a couple of years, as more fraud is discovered – both through management being focussed by the recession on questioning costs, and because tighter cashflow and credit makes fraud harder to hide. Mike Mason, Head of Fraud at BDO LLP in Southampton, commented: “2009 saw the steepest increase since our report began seven years ago, with the average value of each fraud now over £5million compared to £1.8million in 2003. “Based on the 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. “A large part of this will be a tidal wave of fraudulent borrowing that has only just started to appear, particularly through the use of over-valued properties as security for loans. Currently many of these frauds are yet to be recognised by the banks, which still have them classified as non-performing loans. “It is only when specialist recovery departments start their investigations and litigating against dishonest borrowers and their complicit advisors that the true extent of these potentially horrendous fraud losses will emerge. It will take many years for the excesses of the past years to work through the system.” Advice for business owners – Question the good as well as the bad Mason explains: “Fraud has always been a risk to businesses, but during the good times management often fails to question good news. We see it repeatedly, 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, seemingly profitable enterprises have collapsed 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. I often find that management’s most powerful defence is continuing to ask the question 'why?'. Managers and business owners need to keep asking why something is happening, especially when it sounds like good news, and they will sadly often unearth a much more unpleasant truth.” - ends -

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