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The Current Economic Climate - A Golden Age for Fraud?

This article is the first of a series on accounting fraud which follows our July[1] and September webinars[2] on “How to Commit Accounting Fraud: Why this can ultimately lead to corporate collapse.

In this series, we will cover:

  • Relevance to the current economic climate;
  • How creative accounting can be used to distort financial performance;
  • Case study examples; and
  • The warning signs and the characteristics of a company/founder that leave it open to fraud of this type.

Large-scale fraud remains in the news: 

  • In September, the Serious Fraud Office, which oversees England, Wales, Northern Ireland, and the Channel Islands, charged four former finance executives of the collapsed UK café chain Patisserie Valerie with conspiring to inflate the cash in Patisserie Holdings’ balance sheets and annual reports from 2015 to 2018.[3]
  • Shares in Victoria, a UK supplier of red carpets to the royal family, tumbled in September after the group’s auditor warned there was a “risk of material fraud” in its accounts.[4]
  • Trafigura, one of the world’s largest commodity traders, reported in February that it had been the victim of an alleged $590mn fraud involving cargoes of purported nickel that contained much cheaper materials.[5]
  • The conviction of FTX’s former CEO Sam Bankman-Fried for fraud.[6]
  • Wirecard, one of the largest ever accounting fraud cases continues with the former CEO and CFO currently on trial charged with fraud, embezzlement, accounting, and market manipulation.[7]

Challenging Economic Environment

Historically, economic downturns have always exposed cases of accounting fraud with the stock market crash in the early 2000s flushing out accounting frauds at Enron and WorldCom. The global financial crisis of 2007-09 exposed fraud and negligence in mortgage lending and the largest Ponzi scheme in history run by Bernie Madoff. As Warren Buffet famously said: “Only when the tide goes out do you discover who's been swimming naked.” 

The current economic environment is particularly challenging as companies have to navigate the highest interest rates since 2008 and the highest levels of inflation since 1990 coupled with low levels of economic growth. This follows decades of cheap finance which have left many businesses highly leveraged and sensitive to these conditions. It is further highlighted by the fact that in the second quarter of 2023, there were over 6,700 insolvencies in Britain, a number 50% higher than the same quarter pre-pandemic in 2019, a trend that is likely to continue, with forecasts that 7,000 businesses are likely to fail every quarter in 2024.[8] 

The current economic environment puts added pressure on companies to deliver results and in some cases simply stay afloat, which may serve as an incentive for senior management to manipulate earnings. For listed firms, these pressures are magnified with investors demanding growth in earnings, as these often significantly influence the company’s share price. Missed earnings can be brutally punished. For instance, Dutch payments processor Adyen’s shares fell by a third in August after a first-half earnings miss.[9]

These types of activities are commonly rationalised with assertions that “everybody is doing it” and that it merely amounts to “aggressive accounting” whereas others get comfortable by believing that it is a temporary measure which, in their eyes, is keeping an otherwise successful company in the black through a recession.

Companies that are inflating their earnings must eventually match them up to cash flow, so they often have to raise debt to disguise the fact that they are not generating real cash. This was relatively easy in the recent periods of low-interest rates and highly liquid financial markets. Now these same companies are facing downgrades by rating agencies, rising borrowing costs, or being denied credit to continue their cover-up, leading to frauds being uncovered or in extreme cases the collapse of the company.


Many will have followed the numerous insolvencies that large-scale accounting fraud can lead to, with Wirecard, NMC Health, Patisserie Valerie, and the Abraaj Group to name just a few. 

The impact does not always have to be terminal to be severe with a recent example being WANdisco, where the discovery of $115.5m in falsified sales bookings led to an announcement in May that WANdisco will cut around 30% of its staff, and when its stock was re-admitted to trading in July, the share value was down 96%.[10]

Increased Scrutiny

Recent years have also seen increasing scrutiny and demands from regulators and the public regarding subjects such as Environment, Social, and Governance (ESG) and corporate transparency. 

In the UK for instance, the ‘failure to prevent fraud’ has just become law[11] as part of the Economic Crime and Corporate Transparency Bill which will specifically target offences such as accounting fraud, meaning that firms can be found guilty for ’failure to prevent,' facing potentially unlimited fines.

This places further pressure on auditors, who already face a perceived expectation gap regarding their responsibility for detecting fraud with many believing they are responsible for detecting all fraud. When in fact they are only responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error.

Perceptions of the role of auditors are not aided by the U.S. Public Company Accounting Oversight Board, the U.S. audit regulator set up in the wake of Enron’s collapse, imposing record fines in 2023,[12] and the Financial Reporting Council’s (FRC), the UK equivalent, recent announcement that it has imposed a record £21m fine on KPMG for its audits of Carillion, the government contractor that collapsed in 2018[13]. UK enforcement remains active with the FRC currently investigating 27 enforcement cases relating to potential audit failures.

As economic pressures compound, we expect to see the fraud cycle that historically follows repeat itself with an increase in instances of accounting fraud being uncovered. 

Our next article will focus in on the theory behind Accounting Fraud to explain some of the mechanics behind the creative accounting techniques employed by fraudsters to distort financial performance. 

[1] Ankura: Accounting Fraud Webinar Recording

[2] Ankura: Accounting Fraud Webinar Recording (Part 2)

[3] Serious Fraud Office, News Release, 13 September 2023, ‘SFO charges four individuals behind Patisserie Valerie collapse’.

[4] Financial Times, 25 September 2023, 'Royal carpet maker Victoria’s shares tumble on auditor’s fraud risk warning

[5] Financial Times, 27 February 2023, ‘Trafigura: the 10-day unravelling of an alleged $500mn fraud’.



[8] Centre for Economics and Business Research, 4 September 2023, ‘Britain likely to witness 7,000 business insolvencies per quarter in 2024, as high interest rates cause financial strain’.


[10] Financial Times, 20 April 2023, ‘UK’s financial watchdog launches probe into WANdisco’, The Standard, 4 May 2023, ‘Scandal-hit WANdisco to cut 30% of jobs’ and Blocks & Files, 25 July 2023, ‘WANdisco readmitted to AIM stock market’.




© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.


emea, uk, compliance, compliance & ethics, forensic accounting, fraud & recovery, forensics & investigations, white collar, article

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