Fraud cases totalling more than £1.1 billion ($1.57 billion) came to

UK courts last year and historical trends suggest the size of financial wrongdoing will continue to increase this year and beyond, according to data produced by KPMG, the accountancy firm.

In KPMG’s “Fraud Barometer” measure of cases, it said the financial scale of fraud in cases produced to courts last year was the highest level recorded since 1995 and the second highest figure in the 21-year history of this survey. There were a total of 239 cases last year.

The alleged Ponzi scheme fraud of

US money manager Bernard Madoff, who was arrested last December, shows how the credit crunch has brought a large number of actual or alleged frauds to light in recent months.

Fraud by professional gangs stood at £800 million, and there were substantial increases in the amount perpetrated by individuals. Taken as a group, company managers, employees and customers were tried for about £300 million of frauds last year, three times the levels seen in 2007, KPMG said.

The worst is yet to come, KPMG said, noting that the bulk of the fraud committed since the credit crunch began in August 2007 will most likely not yet have come into the public courts. The Fraud Barometer’s records show that in the last recession of the early nineties the full peak of fraud in the courts was not reached until 1995.

“These figures are bad enough in themselves, but I fear the trend for the next couple of years will be even worse. As the global economic downturn takes hold and organisations look ever more closely at their operations it is very likely that more fraud will come to light so that the real impact of the credit crunch on fraud is yet to be fully felt. Already though, the signs are there - globally in the last twelve months alone at least three alleged multi-billion pound frauds have been uncovered, ” said Hitesh Patel, fraud investigation partner at KPMG Forensic.

According to KPMG’s Barometer, which measures fraud cases coming to court where the charges are for £100,000 or more, professional gangs accounted for £806 million of fraud across 111 cases. The worst hit sector was financial services, which suffered £388 million of fraud in 63 cases, a ten-fold increase on the £37 million (36 cases) recorded in 2007. However, this was in part fuelled by an alleged £220 million attempt to hack into Sumitomo Matsui Banking Corporation’s systems which came to court in the first half of the year.

Mortgage fraud cases, which started to show an increase in the first half of 2008, continued to grow in the second half of the year, with 25 cases worth £36 million across the whole year compared to just 10 cases worth £3.7 million in 2007.

KPMG Forensic warned that as the downturn unfolds mortgage frauds, both by organised syndicates and individuals, are likely to become more visible.

The

UK government, conversely, experienced a significant fall in losses to fraud, down to £207 million (56 cases) from £833 million (68 cases) in 2007. This was driven by a large reduction in so called carousel fraud cases, where VAT on items such as mobile phones is fraudulently claimed back.

The corporate sector suffered during 2008, however. There was a five-fold increase in fraud losses, up from £24 million (45 cases) in 2007 to £125 million (54 cases) in 2008. For all organisations (corporates, financial sector and public sector), the fraud threat grew both internally and externally: managers accounted for £128 million (£54 million in 2007) and employees for £100 million (£27 million), while customers inflicted £65 million (£25 million).

Cases varied widely in the financial sums involved. One senior fraudster was the financial controller of a data firm in Exeter who wrote cheques to himself to pay for three cars including an £84,000 Bentley, ran up credit card bills of some £150,000, and diverted £130,000 of company funds into his wife’s business.

At the other end of the spectrum, a junior personnel officer carried out frauds at three employers in a row, splashing out on company credit cards, cashing cheques and even setting up personal direct debits from business accounts. Despite being sacked by her first two employers for committing fraud, she was still able to find work and carry out her scams again. She got away with over £200,000 before she was finally prosecuted.

Mr Patel said: “Internal frauds are becoming more prevalent and should set alarm bells ringing within organisations. In difficult times, they could even become the tipping point between the survival and demise of an organisation.”