The credit crunch has had an adverse effect on many people’s lives; for some, however, it has been the impetus for criminal activity.

The effect of the current downturn on the occurrence and the detection of fraud, is difficult to assess. But one thing is certain, it increases the likelihood of it both happening and being revealed.

The Organisation for Economic Cooperation and Development warned this week that Britain is uniquely vulnerable to the deepest economic slump since the recession of the 1990s.

Companies that have experienced unprecedented levels of growth over the past few years currently face difficulties in meeting forecasts and expectations. The temptation to conceal bad news from external and internal observers increases, thereby fuelling an incentive to commit fraud and secure results by any means.

The test now is whether the increased corporate governance measures introduced since the last significant corporate collapses of early 2000, are sufficient to curb the growing temptation to commit fraudulent activity.

In times of economic downturn, recurring fraud that had previously been masked by high profit levels and lax internal controls are also likely to emerge for the first time. For example, transactions or business areas that were profitable may now become loss-making and thus subject to more scrutiny.

Not only are levels of reported fraud likely to rise, but it is expected that patterns of fraudulent activity will differ during different economic cycles. When lenders ramp up their scrutiny levels, certain individuals may come under increased pressure to access funds and consider hiding their adverse credit history, thereby submitting fraudulent loan applications.

For fraudsters who previously relied on targeting corporations and financial institutions, the landscape has changed as well. With such companies increasing their internal controls as a result of the crunch, fraudsters are now focusing on individuals rather than institutions.

This has led to a growth in the incidence of identity theft. Individuals and companies alike must reassess their need for self-applied controls rather than rely on the security measures supposedly provided by the regulators.

In the meantime, we have already noticed a marked increase in demand for our services and are gearing up resources to handle the expected increase in the emergence of fraudulent activity.

Julian Jones is head of the forensic accounting division, Quest Limited