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Reported tax avoidance on the increase as accountants track highest ever year for corporate fraud

The value of reported fraud cases against UK businesses reached a record £2 billion in 2011, according to a report.10 Jan 2012

More than one third of those reported cases related to tax fraud, particularly VAT avoidance, accountancy firm BDO said of its data.

The annual FraudTrack report showed a sevenfold increase in the cost of reported fraud to business since it began monitoring cases in 2003, BDO said. The firm also reported a substantial rise in both the number and the average value of reported fraud cases, with 413 cases in 2011 at an average value of £5 million. The report tracked 372 cases in 2010, at an average value of £3.7m.

The firm's annual report collates data from all reported fraud cases over £50,000. Simon Bevan, head of fraud with the accountancy firm, said that the higher figures were "worrying but not at all surprising".

"When the economic climate is difficult there is even more focus on the bottom line and driving out unnecessary costs, so fraud is more likely to be uncovered. But organisations need to be much more proactive when it comes to preventing fraud – too often risk teams are either too externally focused or fail to look at fraud from a financial point of view," he said.

Tax fraud accounted for just over 36% of all frauds committed, up from 20% in 2010 and 15% in 2009. These cases cost firms an average of £13m each, the report said - significantly higher than the average value across all cases. HM Revenue and Customs (HMRC) has recently taken on more staff specifically to tackle tax avoidance, and the Government is currently considering an independent report which recommended the introduction of a general anti-avoidance rule.

The report highlighted a "boom" in retail fraud. The sector accounted for 12% of all fraud last year, compared with just 2% in 2010. BDO's Simon Bevan said the industry was "vulnerable" in the current economic climate, and with the firm's statistics indicating that 30% of all fraud is committed by suppliers and customers it was "unsurprising" that the sector had been increasingly affected.

Although only 1% of reported fraud cases affected the construction sector, Bevan said that this suggested that "fraudulent activity is not being reported", rather than that no fraud was taking place. A survey by corruption watchdog Transparency International at the end of last year highlighted public works contracts and the construction industry as areas at particular risk of bribery across the world.

"Fraud and corruption have been a commercial reality in the construction industry for a long time, so the fact that so little is being reported indicates that organisations have failed to grasp that they need to bring their business practices up to date, especially in the wake of the Bribery Act," he said.

However there was good news for the finance and insurance sector, which only accounted for 27% of all reported fraud in 2011 - the sector's lowest percentage in the last five years. Finance and insurance accounted for more than half of the previous year's reported fraud cases.

"Financial services institutions have invested heavily in systems and technologies to prevent and track fraud, so the fact that reported fraud in this sector has decreased as a percentage of overall fraud suggests this approach is working," said Bevan.