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accountingcpd.net author John Taylor responds to the recent release of the KPMG Fraud Barometer figures, which show that fraud is on the up, and how this can affect your businesses need for vigilance.

by John Taylor

Financial crime hit record levels in 2010 according to the KPMG Fraud Barometer, but this time financial services industry frauds, normally in the top spot, have been overtaken by frauds against the government.

The Fraud Barometer is based on cases involving frauds in excess of £100,000 which have come before the courts. In 2010 314 such cases were reported with a total value of just under £1.4bn, the highest level ever recorded in its 23-year history. This was up 16 per cent on the previous year. The true level of fraud is likely to be considerably higher as the Fraud Barometer is based on large frauds only so smaller frauds, often perpetrated by employees, are not included.

One area of good news is that mortgage fraud cases are down but then so are mortgages, so the news may not be that good after all!

What is all this being attributed to? In the case of frauds against the government there is often a substantial involvement of professional criminal gangs involved in, for example, VAT frauds or organised benefit scams and there is always the perennial favourite of tax fraud. In 2010 some 42% of all major frauds were perpetrated against the government. One of the largest cases was worth £103m, in which a man claimed a flood of fraudulent bids for tax breaks on research into green technologies.

However, and more worryingly, there has also been a sharp increase of 20% over 2009 levels in crime committee by company managers. This could be attributable to the economic pressures to maintain business results or to maintain a lifestyle when profits and incomes may be falling.

So management fraud has continued to be rampant and companies need to be aware that the biggest threat to their security is likely to be the management not the employees.

Fraud is not a victimless crime. It damages trust, it costs organisations money in unrecovered fraud proceeds or increased insurance premiums and audit costs and it costs perpetrators who are caught their liberty and their reputation.

When money is tight and companies are being squeezed there is the temptation for directors to manipulate the results, particularly when performance related pay is involved, but equally employees are coming under pressure as wages fail to keep up with inflationary price increases. It is often the case that, when times are tight and organisations are examining all their costs and operations with view to making savings and improving efficiencies frauds tend to be exposed so more bad news may be on the way.

Fraud is on the increase and companies which are ill prepared or which persist in out of date accounting practices, have poor human resource policies or which turn a blind eye to the use of new technologies may well become victims.

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