A regional newspaper desperate to bring in more advertising revenue starts to encourage its staff to inflate the circulation figures. Only when a new director arrives does he notice that the company does not buy enough newsprint to print the numbers of papers its circulation figures are claiming.

A husband and wife team running a well-known charity are sole signatories of the charity’s bank account and are secretly siphoning off money for themselves. They manage to take £750,000 before a sharp-eyed trustee notices that the charity’s figures do not add up and makes moves to freeze the bank account.

Such frauds are just the tip of a very large iceberg, says David Dearman, forensic partner at chartered accountancy firm PKF, which was called in to advise on both these cases. Fraud costs the UK economy up to an estimated £14 billion a year, a figure allowing for a large amount of fraudulent activity which either goes undetected or is unreported by companies reluctant to jeopardise relationships with bankers, shareholders or customers.

Despite the growth of crimes like identity fraud and cybercriminals hacking into company databases, the majority of business fraud takes place internally, says Dearman. "I would say 75 per cent to 80 per cent of fraud is carried out in collusion with senior managers and directors.

"Organisations think they have good systems but people inside companies know how to circumvent them."

Common types of business fraud include theft of company assets, company directors massaging figures to improve their profit share options or get access to venture capital, and collusion between employees and suppliers to doctor invoices and charge unapproved items to unsuspecting companies. In one case investigated by PKF, a soon-to-be retired account manager buying fence posts and fencing panels for his garden did a secret deal with a supplier to add them to a company invoice as "sundries" so that the company would pick up the bill.

Employees also forge signatures on company cheques, steal company cash and equipment, give backhanders to favoured suppliers and use false identities. Larger companies are especially vulnerable to this type of fraud. According to a survey for banking group HBOS, nearly half of all companies with more than 36 employees have been hit by fraud, compared with just under one-fifth of firms with fewer than 15 employees.

Many companies are still not taking fraud seriously enough as a business risk, says Mr Dearman. "There’s a feeling that 'it can’t happen here', especially with smaller companies which have expanded through acquisition or growth and whose internal controls have not evolved with the growth." A recent PKF survey revealed that 46 per cent of small and medium sized businesses had no fraud controls in place.

Larger organisations may have better controls and more resources but if parts of the business operate from remote locations or authority for internal controls is devolved between different managers, fraud can still flourish undetected.

Rules brought in after the Enron scandal are forcing companies to tighten up internal controls and accounting procedures. But often fraudulent activity only comes to light through a corporate whistleblower or vigilant trustee, non- executive director or non-executive chairman. In other cases, an internal or external audit will expose wrongdoing.

When PKF’s auditing department uncovers fraud during an external audit, the firm’s forensic services department can be brought in to image computer data and take it away for analysis and investigation.

The firm is also regularly called in to investigate by concerned directors or trustees who suspect fraud. The firm’s 30-strong forensic team advises public and private sector companies and charities on tackling fraud prevention and tightening up internal controls. "We act as advisers and experts," says Mr Dearman.