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News release
11 January 2010
Set to treble over 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.
BDO LLP (one of the UK’s largest teams of specialist fraud investigators) predicts that, unfortunately, this 76 per cent 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.
Simon P. 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.
“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.”
Advice for business owners – Question the good as well as the bad
Bevan explains: “Fraud has always been a risk to businesses, but during the good times often management fails to question good news. We see it time and time again, 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, we have seen seemingly profitable enterprises falling flat 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 defense 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.”
About FraudTrack
Simon P Bevan is BDO‘s head of the BDO’s Fraud Services Team. He has over twenty years’ experience of investigating fraud both in the UK and other international locations.
FraudTrack is prepared by BDO and is based on all reported fraud cases of over £50,000 from 01 December 2008 to 30 November 2009. The sources for the database are publicly available and include the UK’s national, regional and local press.
Please contact Tim Prizeman or Will Richardson at Kelso Consulting (PR advisers) for further information, or download the PDF for full report.
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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. BDO LLP (one of the UK’s largest teams of specialist fraud investigators) predicts that, unfortunately, this 76 per cent 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. Simon P. 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. “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.” Advice for business owners – Question the good as well as the bad Bevan explains: “Fraud has always been a risk to businesses, but during the good times often management fails to question good news. We see it time and time again, 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, we have seen seemingly profitable enterprises falling flat 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 defense 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.” About FraudTrack Simon P Bevan is BDO‘s head of the BDO’s Fraud Services Team. He has over twenty years’ experience of investigating fraud both in the UK and other international locations. FraudTrack is prepared by BDO and is based on all reported fraud cases of over £50,000 from 01 December 2008 to 30 November 2009. The sources for the database are publicly available and include the UK’s national, regional and local press. Please contact Tim Prizeman or Will Richardson at Kelso Consulting (PR advisers) for further information, or download the PDF for full report.
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