Fraud is rising sharply in the UK, driven by tough economic conditions, according to a new survey from accountancy firm KPMG.

The total value of attempted frauds dealt with by the courts in the six months to 30 June soared to �255m ($357m), 150% up on the previous six-month period, KPMG said.

The increase reflects a surge in public sector fraud, primarily tax and VAT evasion, as well as a steep rise in financial and banking scams.

Increased public spending makes it vitally important for prosecutions to be brought

David Alexander, KPMG

The value of public sector fraud soared 330% compared with the previous six months, boosted by five cases in which conmen tried to avoid paying �74.5m in VAT on imported cigarettes and mobile phones.

In the banking sector, the total value of attempted fraud jumped to �51.8m from �11.3m in the second half of 2001, lifted by three major banking scams involving the use of bogus securities.

Finance sector fraud also rose sharply, mainly because of a high-profile case in which conmen posing as film executives tried to swindle St Paul's cathedral out of �100m.

KPMG fraud investigations partner David Alexander said the number of prosecutions is likely to keep rising for the next two years as more scams launched during the recent economic downturn come to light.

There is a strong correlation between the incidence of fraud and economic slowdowns, which put firms and individuals alike under greater pressure to cut corners in business transactions.

Vigilance

Mr Alexander said the extent of public sector fraud underlines the need for the government to safeguard recent increases in public spending by cracking down on those responsible.

"Increased public spending makes it vitally important for prosecutions to be brought against those who try to defraud HM Customs and Excise and the Inland Revenue," he said.

But in a sign that 'inside jobs' may not be as widespread as feared, a large majority of recent frauds were perpetrated by external third parties.

Just 7.5% of the total fraud value over the last six months were carried out by management or employees.

"This external threat indicates the need for all businesses to make rigorous checks on the parties they do business with," Mr Alexander said.