Forensic Economics

Discussion in 'Economics' started by ljyoung, Jul 2, 2009.

  1. This from the FT:

    Corporate fraud losses soar to £960m
    By Brooke Masters

    Published: July 1 2009 18:37 | Last updated: July 1 2009 18:37

    UK corporations lost £960m to publicly reported fraud in the half year to June 30, the highest six-month total since at least 2003, when BDO Stoy Hayward began tracking corporate fraud.

    There were 182 cases with combined losses of £960m reported to authorities to the end of June, compared with 121 cases and losses of £705m at the same time last year. At this rate, UK companies are on track to surpass the record for annual losses of £1.37bn set in 2006.

    The figures almost certainly understate the problem because they only include cases that have been publicly reported to authorities. Many companies prefer to handle problems such as employee theft, accounting misdeeds and kickback payments privately.

    They may also use civil litigation to try to recover their losses, and private settlements are also not captured in the totals. BDO estimates that as much as 95 per cent of fraud losses are not publicly reported.

    Nearly half of the reported fraud was classified as corporate management fraud, a category that includes false financial statements. The next biggest category was mortgage fraud. About two-thirds of the losses were in the finance and insurance sector – as was true last year.

    Simon Bevan, head of BDO’s fraud services team, said the current wave of cases might only be beginning. “We’re being asked to look at bigger and bigger cases. From a fraud point of view, we’re a long way from the bottom.”

    Mr Bevan said that reports of loan fraud were likely to rise sharply in the coming months as banks begin to look more closely at their portfolios of non-performing loans. Reported losses from real estate fraud reached £97m in the first six months, but Mr Bevan expects the totals to rise.

    It seems highly improbable that the Brits are bigger crooks than those of us on this side of the pond. So while there will continue to be palaver about supply this and demand that, the reality is that much of what went on behind the scene of the most recent debacle remains, well, behind the scene.

    A suggestion for a new discipline - let's call it 'forensic economics', an area of study where attempts are made to estimate (is economics any better than an estimate at the best of times?) the extent to which fraud, deceit and lies have been incorporated into the bottom line. This has less to do with morality and more to do with facing fiscal reality.

    My guess is that this sort of thing has been discussed by others before but perhaps it's time to exhume the corpse of past efforts in this area and poke about a bit.

  2. TGregg


    Just yesterday, I saw an advertisement for a college for "forensic accounting" where you learn how to spot fraud.
  3. Good idea. It's like many things, from discouraging terrorists and unpleasant leaders from third world countries by paying them off, to the 'greening' of big business. If a profit incentive can be put in place, then the most outrageous idea can gain credibility. It is preferable though that idea have some merit other than simply using the idea to line one's pockets at the expense of somebody else.

  4. Eight


    Nobody should get a performance bonus based on individual merits. An overall bonus shared equally is probably ok. Doctors in HMO's will let people die to enhance their bonuses, that is how nuts some people are about bonuses.. it just should not be done...
  5. I'm not entirely sure where you get your information concerning the actions of HMO physicians unless you are talking about institution-/corporation-mandated denial of care for whatever reasons (typically money). Depending on how one looks at it, that could be an example of a bad idea with no merit other than lining the pockets of the HMO/HMO-employed physician at the 'expense' of the patient. On the other hand there is the more general question of rationing of care which is practiced all the time by any number of healthcare entities from the state of Oregon to Medicare - a complicated topic at the least.

    As I said above it depends on what ends are used to achieve the goal and whether the goal has benefit aside from a self-serving gain at another's expense.