Fraud Advice

I read with some concern an article in this Sunday’s papers about the plans of City of London Police Economic Crime Unit for the coming year. Detective Chief Superintendent Stephen Head is on record saying ‘…as with the drugs trade, there is little point picking up a lot of small fry while the big operators get off free…I want to concentrate on maybe five very big fraudsters in place of 20 smaller ones…’

I agree that the big fraudsters should be targetted a lot more than they are. The whole concept of fraud is that it is a hidden crime and many organised criminals are currently getting away with various fraud scams big time. Yes, a lot of them get caught eventually, most having run for between three and five years. An awful lot of damage is being done to our economy in that time, which can ill afford it in the current climate. There are many fraudsters that do not get caught – or worse still, the authorities are unable to act fully or effectively, such is the complexity of the scam being perpetrated.

But there is a huge raft of smaller frauds taking place. Fraud is endemic in our society of high taxes and consumer excesses. If you thought that the ‘under table’ economy was restricted to third world countries or other less advanced administrations, you were wrong. Our society is as corrupt as any other, just that we are more circumspect.

Systematic tax evasion occurs, where workers are encouraged to claim benefits and not pay tax by their employers so that the wages bill can be less. These are the sort of companies that trade for a year or two, closing down and then starting up under a new name and very likely leaving a few unpaid bills behind them. These are the businesses that steer clear of any professional help, from lawyers and accountants who have a legal obligations to shop them to the authorities that overides any professional duty of confidentiality. In this way the Anti Money Laundering Regulations are missing a large proportion of the illegitimate cash that is being circulated and tax that is being avoided.

Add to this the wide ranging stress and hardship that is caused by the smaller frauds that come to light. Old people are duped out of their savings by an unscrupulous carer, small businesses go to the wall when the bookkeeper embezzles the funds needed for next month’s wage bill and individuals risk their dwindling pension funds in an attempt to provide for their families future. The fraudster does not care about the hardship he or she is causing, and for every ‘big fraudster’ systematically skimming millions, there are a thousand con men and scam merchants earning much less but nevertheless causing immense harm to innocent people.

If the City of London is upping the size of the frauds it targets, I hope this is not the pattern around the country. Already the small fraud is too easy to commit, and the chances of the local police investigating are remote. Not only do they not have the resources to investigate, they also lack the will because their performance is measured by dealing with more ’serious’ crime like murder, rape, burgelary and social nuisance. I agree that these are areas that need continued attention, but should rank alongside fraud when bidding for funding from central government.

Instead of attempting to budget a limited sum of money, and cutting back on fraud, attempts should be made to discover how much money would be needed to establish a comprehensive fraud resource and then worry about funding it! I know that if this resource was established, the level of asset recovery of criminal proceeds of crime would escalate substantially and not only provide self sustaining funding for economic crime units, but also contribute to compensating the victims of fraud for their losses! I just hope that there will continue to be funding for at least some work for forensic accountants - forensic accounting is the only efficient way to unpick the financial records behind some of the more complex frauds that are detected.

The first decade of this millennium has been characterised by quite a lot of substantial frauds when you pause to look back. We have seen massive accounting scandals in the form of Enron and Parmalat – who would have thought that a top tier accountancy practice could collapse as a result of such a scandal as Enron?

The decade has seen a massive raft of VAT frauds in the “Carousel” merry go round of Missing Trader Inter Community mobile phone and computer chip scams. Coming years may see this fraud extend to all forms of products, even including the trading of carbon credits!

The scale of the Ponzi investment frauds that started emerging in the latter part of the decade only reflect a business model that seems to have been flourishing for three quarters of a century since Charles Ponzifirst gave his name to such an obvious swindle. There will be more of this in the newspapers for years to come as I believe the culture of the Ponzi style fraud is ingrained in the financial systems around the world. A lot of it is sustained in the same way as the global economy is sustained – the illusion of a bottomless bucket of credit.

And throughout recent years we have seen the authorities try to get tough with the organized criminals by confiscating their assets. What has happened is that the career criminals have enough money to hide behind and the onerous asset seizure is routinely applied to those who fail to cover their tracks or are stupid enough to neglect filing even token tax returns!

So where will we be in the coming 10 years or so? I think the fraud regulators may start to form some sort of cohesive group but how far will they get? Given the public sector wastage of the past 12 years or so I suspect that the limited funding available as a result of propping up the banks will not go far.

Speaking of funding we are still awaiting effects of the public spending cutbacks on the forensic accounting profession. Will criminal fraud and money laundering trials become shallow bun fights without the financial issues being fully aired by competent accountants?

My own views are that there will be ample scope for the efficient fraud operator to assist private clients if they are efficient, hard working and not greedy for fees. A hard task perhaps? I do not think that the individual or small business who has been “ripped off” is properly catered for. Losing £10,000 or even £100,000 does not seem to excite the authorities these days, but they will spend tens of £millions on the big frauds.

By managing fraud cases on behalf of groups of individuals who have lost out to systematic sharp businesses or outright fraudsters - it may be possible to persuade those agencies with the powers available to them to get involved.