Mobile phone scams are adding to fraud levels

The figures, included in the six-monthly Fraud Barometer from the 300-strong fraud team at accountants KPMG, show that the economic downturn is both bringing fraud out into the open - and making it more prevalent.

They also indicate the growing problem of "carousel fraud", where criminals dodge VAT on the import of goods such as mobile phones, which - recent government figures show - helped increase the UK's trade gap by almost �23bn between 1999 and 2002.

According to the survey, 90 cases of fraud with a price tag of more than �100,000 reached the UK's Crown Courts in the first six months of 2003 for a total value of �216m - down from �255m in the same period last year.

Pressure

According to David Alexander, fraud investigation partner at KPMG, a slowing economy not only exposes the 4% of turnover which fraud costs most businesses - but can encourage more fraud.

"There's a direct correlation between the state of the economy and the amount of fraud," he told BBC News Online.

In a small minority of businesses, he said, the pressure to hit targets as money gets tight can encourage managers to fudge the figures in ways which only turn up as so-called "black holes", if at all, when accounts are audited at the end of the year.

FRAUD DAMAGE Carousel fraud's contribution to the swelling trade deficit: 1999: �1.7bn 2000: �2.8bn 2001: �7.1bn 2002: �11.1bn

In addition, frauds which might have been overlooked during the boom years become a lot more important when profits are harder to come by.

The tougher climate affecting people's personal finances also plays a part, he said, and with personal debt at all-time highs the temptation to defraud can be intense.

And the increasing incidence of identity theft, where crooks use people's personal data to get credit or goods in their names, is also making a strong showing, in one case involving a man using 59 identities "stolen" through the electoral roll to obtain more than �500,000.

Mobile merry-go-round

But also affecting the figures in recent years are some high-profile prosecutions for carousel fraud.

The scam occurs when mobile phones - and other small, high-ticket items - are imported VAT-free from elsewhere in the European Union.

They are sold onto an end purchaser, who pays VAT and claims it back from the government.

But the original importer, who should now be paying the VAT received on the deal, has disappeared, giving the con its other name: "missing trader" fraud.

Sometimes both traders are fraudulent, and the goods non-existent.

Customs and Excise has mounted a number of high-profile prosecutions thanks to a specialist unit in the Midlands - set up there, in part, because many of the frauds involved cities such as Stoke-on-Trent.

A Customs spokeswoman said its anti-carousel fraud - in place since September 2000 - was stabilising the rate of growth.