In 1995, knowing that he could not hide any longer, Nick Leeson left a note for his bosses that said simply “I'm sorry”, went on holiday and waited for the world to cave in. He had lost £800 million for Barings Bank and brought down Britain's oldest merchant bank.

“Most fraudsters never expect the day of reckoning to come,” John Smart, the London head of fraud investigation at Ernst & Young (E&Y), one of the Big Four auditors, said. But this day may arrive sooner than many think. Like many crimes, fraud is reported more frequently in a downturn. The annual Fraud Barometer from KPMG, another Big Four accountant, showed a 50 per cent escalation in the first half of 2008. Banks suffered their highest ever rise, with £350 million in frauds coming to court.

Accounting manipulation is one of the most common types of fraud to increase. With finance harder to access, companies that are under pressure from shareholders may try to boost results artificially by inflating profits, deflating losses or bringing sales forward. “It may not be for personal gain but about making the figures look good,” Mr Smart said.

Subsidiaries or sub-contractors are more difficult to monitor and can pose a danger. A recent E&Y client, a publishing company, had a subsidiary in the United States that was reporting good results. When an audit turned up anomalies in the accounts, a subsequent investigation found that the subsidiary had been making up sales and feigning reduced costs. The “black hole” that emerged was worth $40 million (£27 million) - in a business that was making $4 billion a year.

“It was quite painful,” Mr Smart said. “It had an impact on share price, a large portion of the workforce was made redundant and management were sacked. Worse, the business was not as profitable as they had thought.”

The fact that more fraud is reported during the downturn is not always indicative that more is taking place, according to Chizu Nakajima, director of the Centre for Financial Regulation and Crime at Cass Business School. Tougher times lead companies to analyse their cashflow more closely. In doing so, often they uncover fraud that took place years before. In the good times, when profits are buoyant, concealing the odd million is not that difficult.

“In Tokyo, the market crash of 1990 revealed all sorts of malpractice and fraud in a stock market that had defied the global trend,” Ms Nakajima said, who is undertaking research into internal fraud in the banking sector, said.

With the downturn, layers of middle management are often removed and, with them, the number of checks. Many companies regard their anti-fraud boards as a non-essential expenditure, Ros Wright, chairman of the Fraud Advisory Panel and a former director of the Serious Fraud Office, said, adding: “This is a very dangerous thing.”

Public-facing companies should be worried about gangs bribing employees to reveal sensitive information, such as customer bank details. Many call centres have forbidden employees from wearing clothing that may be identifed in public.

“Lower-paid employees are very vulnerable, especially if they're under personal financial pressure,” Ms Wright said.

It is estimated that 80 per cent of fraud occurs from within. According to Mr Smart, when it comes to employee fraud, obvious signs are often correct. “Watch out for the accounting clerk driving an expensive car. The employee who never takes holidays is a classic - they don't go away because they can't afford to risk being found out.”

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