Set to treble over next three years, according to accountant

Reported fraud in the UK exploded in 2009 and broke the £2bn barrier for the first time according to new research.

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, said the research.

BDO LLP, which conducted the research, warned that corporate fraud could be as high as £5bn in a couple of years, as more fraud is discovered.

Simon Bevan, head of fraud at BDO LLP, 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.”

He added: “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.”

“A large part of this will be a tidal wave of fraudulent borrowing that has only just started to appear, particularly through use of over-valued properties as security for loans, while the property market was booming. 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 thorough investigations and eventually litigating against alleged dishonest borrowers and their complicit advisors that the true nature of these potentially horrendous fraud losses will come to light. It will take many years for the excesses of the past years to work through the system.”

Other findings of the research, include:

While many managers are running their businesses well and legally, there are others that are looking after ‘number one’ and are likely to be ‘cooking the books’. BDO’s FraudTrack has identified that the cost of management fraud has shown a whopping 48% increase to £503m in 2009, from the previous year.

Our findings show 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. Ultimately the lost money needs to come from somewhere.

Greed continues to overwhelmingly be the number one motive for fraud in the UK, accounting for over 80% of frauds in 2009. Fraudsters will go out of their way to embed themselves in a business for personal gain, and they also make sure that they won't stand out from the crowd. 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.