Accountants' survey reveals boom time for fraudsters

COMPANY fraud in Britain is booming, according to the accountants KPMG, writes John Willcock.

Ian Huntington, head of fraud investigation at the firm, said yesterday that latest figures from its 'fraud barometer' showed that an expected steep fall in the cost of frauds after the years of Maxwell, BCCI and Polly Peck had failed to materialise.

Instead, the total value of frauds tracked by the barometer for the first half of 1994 was pounds 254m - itself higher than the whole of 1991 or 1989.

This compares with a total 'charge' for frauds for the whole of 1993 of pounds 704.5m.

Mr Huntington blamed the 1990s management cult of empowerment combined with increased job insecurity.

While the total value of frauds might fall over future years, the number of corporate frauds would rise significantly, he said.

He put this down to middle managers being given greater powers and responsibility at the same time as fear of management job cuts had risen and the incentive for achieving business targets had grown.

'These middle managers are driven by fear and greed,' he said. 'If they don't achieve their targets they will be sacked.

'If they succeed the rewards are higher, so the incentive to falsify financial reports is increased. And they have greater freedom to act than before.'

The warning to companies was clear, he said. Empowerment for middle managment should always be coupled with stronger management controls to make sure that vital information was not being held back from senior executives.

More than 90 per cent of this half-year's figures derived from four main types of fraud. 'Mortgage frauds ( pounds 103m) include pounds 100m of charges relating to one group of development companies following a three-year investigation,' Mr Huntington said.

'We are approaching the end of the mortgage-fraud cycle, however. Building societies have tightened up their loan procedures and have learnt their lesson.'

Leasing and banking fraud - obtaining funds by using fictitious leases or assets - accounted for another pounds 55m. This entailed fraudsters leasing the same piece of equipment two or three times over or leasing non-existent equipment.

'There is nothing cyclical about these frauds,' Mr Huntington said. 'Like many other things frauds follow fashion, and we have discovered fraudulent leases have been very popular in the past few years.'

A further pounds 55m related to old- fashioned investment frauds using the promise of unfeasibly large returns on investment funds.