The current trial of two sisters from North Wales accused of trying to claim £161m in unpaid VAT is just the latest case against a backdrop of increased corporate and benefit fraud.
The sisters are accused of a range of fraudulent activities, from stealing incapacity benefits and working tax credits, to registering companies for use in VAT claims and insurance fraud.
Cases such as these reflect unprecedented levels of fraud reported by a range of experts in the sector. KPMG's Fraud Barometer reported private sector fraud levels of £4.2m between January and June 2011, up from £2.5m for the same period in 2010. Total UK fraud for the same period reached £1.1bn, according to the accounting firm. Action Fraud, a campaigning and support agency run by the National Fraud Authority, similarly reports fraud increases of 25% year-on-year in its recent annual statistics.
Given both this increase in fraudulent activity (much of it corporate private sector fraud) and the increased rigour of 'clarified' auditing standards in the UK, audit firms must make sure that their fraud risk assessment is robust, searching and acted upon. Yet the results of file reviews by regulators and our own review team suggest this message hasn't yet sunk in. Audit files frequently limit fraud risk analysis to vague one-line conclusions: 'low fraud risk' / 'no frauds in year' / 'management appear trustworthy' etc. Too many audit teams consider the possibility of low-level misappropriation of assets by staff, and do not adequately address the risk of management fraud on a grander scale.
Many auditors appear to believe, along with their clients, that 'it couldn't happen here'. In fact, many frauds are perpetrated by apparently loyal, long-serving employees who abuse the trust placed in them, and are often adept in concealing the evidence. The alarming fraud statistics should shake all auditors from complacency on this key issue. Maybe the fraud has already happened...