Downturn creates fraud temptation

3 February 2009

3 February 2009

The value of procurement fraud in the UK increased 347 per cent during 2008, according to a report by BDO Stoy Hayward.

The accountancy firm found total purchasing fraud reached £273 million last year, compared with £78.7 million in 2007. It said the economic downturn has played a major role in encouraging both buyers and suppliers to try and secure money illegally.

Simon Bevan, national head of the Fraud Services Team at BDO, said the financial crisis has put added pressure on margins and more people are willing to "try it on". He explained fraud is now at similar levels to those of seen during the last downturn in the early 1990s, and the problem will continue to get worse until the economy recovers.

The study found popular tactics used by buyers to defraud vendors include falsely claiming stock has been under-delivered, temporarily withholding payment and not settling invoices at all.

It also revealed a rise in more traditional forms of corruption, such as bribery and collusion among suppliers. The industries where most fraud was reported were retail, financial services and the public sector.

Bevan predicts that as corruption increases, whistle blowing is likely to fall as employees will want to safeguard their jobs. "Why would they cause trouble? More likely, they will put their heads down, work hard and be thankful they can still pay their mortgage."

To combat fraud, he recommended buyers assess relationships with their 10 biggest suppliers as higher value contracts are more likely to attract corrupt activity.

 

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