Business culture 'leads to fraud'

SPIRALLING white-collar fraud has been encouraged by the 'business school culture', which has de-layered organisations and empowered workers, according to the accountants KPMG.

Ian Hartington, a top fraud investigator with KPMG, launched an onslaught against fraud on banks last night at a seminar in London.

Mr Hartington, who recently completed an 18-month secondment with the Serious Fraud Office, said the risk of fraud in commerce was increasing because of the rapidly changing structures in business organisations.

'The business school approach of de-layering management and empowerment of work forces has led to new temptations for employees,' Mr Hartington claimed.

All types of employee were increasingly under pressure to meet targets, and this again increased the temptation to commit fraud, he said.

The ultimate victims of this crime were often the banks, who suffered loan losses when corporate clients went bust because of fraud.

Mr Hartington insisted that banks could make big strides in improving the amounts they recover from sour loans by concentrating on pursuing fraudsters rather than assets.

The top seven clearing banks still have more than pounds 12bn in provisions against bad loans despite an improvement from the depths of the recession, Mr Hartington said.

Far more of this could be recovered if banks used forensic investigators to pursue fraudsters' hidden assets, especially in the case of 'phoenix companies', where rogue directors put a business into liquidation and immediately start up an identical business but without paying off the old creditors.