It is difficult to believe that we are already into month 6 of 2010. It only seems like yesterday that I returned from my holiday in New York to the minus 15 degree centigrade weather at Manchester Airport at the beginning of January! Now five months later and we have a new Conservative government (Liberally tempered of course) in power and the promise of some sense being brought to the UK. Sense that is after some massive cuts in all the areas of public spending that generally pay my bills! Time for some radical thinking or what?

Actually I do not see the pressure on public spending as a problem. As somebody who has always operated on a “value based” approach instead of the professionals’ normal “hourly based fee” I find that I still remain competitive in all areas of publicly funded fraud activities. This includes working for the fraud regulators and undertaking expert witness work funded by the Legal Services Commission.

However, it is no good being simply “competitive” these days. Promise of results should be most important. In the field of dealing with fraud matters this can be very difficult and yet I believe that one of the fraud investigators’ biggest developing markets is the smaller company or individual who has lost money to the crooks. This is the sector that seems to have the hardest time sorting out the problems caused by the fraudster. Identity theft causes disproportionate distress to the victims compared to the financial; lo0ss they suffer. They also lose credit ratings and the ability to operate in today’s digital environment. Gone are the days that we were paid in cash and bought everything we needed using the same. The loss of a few hundred pounds by a family can cause huge hardship, and thousands of such victims together will provide millions of income for the organised fraudsters.

It is important that smaller losses are investigated. There should be little attention paid to proportionality where crime is involved, but when it comes to trying to get £10,000 back from an employee theft this does not seem to be the case. The only way I have been able to help victims in such smaller cases is to write a letter for them after a brief look at the case details and one or two documents – for them to take to the police. such a letter can cause the authorities to sit up and take note – it is sort of a mini- fraud investigation report that serves to illustrate the seriousness of the loss and show that further investigation will bear fruit. By spending a little on such a letter can stimulate interest and even provide a focus for other victims to band together and fund a worthwhile asset recover action. First Stage Investigation Services are intended to be a cost effective solution to the situation where the level of loss does not merit huge sums being invested in recovery action but can serve either as a catalyst for more substantial regulatory action (and compensation) or can even promote a negotiated settlement in some cases.

Identity theft is a subject that is raised and discussed at many fraud forums and similarly reported in an increasing number of news articles. It is not just the cloning of identities followed by fraudulently obtaining goods or services on credit cards that results from identity thefts. Some very complex frauds are built on false identities and credibility stolen from others.

A report in this week’s Financial Mail in the Mail on Sunday illustrates how such fraud might be working. It involves a potential boiler room fraud which involves the selling of bogus or worthless shares in business ventures by high pressure salesmen. Credibility to their product is provided by details of another real and likely more successful venture whose details can be checked in the public domain.

In this case it appears that an oil company is touting for investment in its two “proven” oilfields. Its web site gives details of a director that are the same as those of another company Petroneft Resources who also has oil fields in Lineyoye and Tungolskye, names that are curiously similar to those quoted for the other bogus oil company. The bogus oil company cannot be contacted and its address details given are false. Petroneft, which is based in Ireland and is clearly a bone fide company, was astounded to find that there is another company that appears to be advertising the same assets as it owns.

Petroneft has reported this instance of credibility hijacking to the Irish Financial Regulator, Financial Services Authority and City of London Police. The FSA say that incidents of identity theft and associated unauthorised sale of investments in typical “boiler room frauds” has increased dramatically over recent months. In the last three months alone it has received 29 such reports.

It does seem that even with the current economic climate that there is plenty of money that investors are seeking to find homes for. This may be a case of moving funds around in an increasingly competitive market or there being more money available for investment. Whatever the case, people with money and those responsible for others’ are still investing in bogus schemes at an alarming rates. Ponzi frauds and other advance fee scams are still being reported and the current flavour it seems is the boiler room threat.

Financially astute persons (i.e. those with money or investing it for others) should not be easily caught by these scams. There is a level of fraud prevention due diliegence that can be carried out that does not involve much effort but will uncover, or at least throw up some red flags, most of the bogus investment opportunities. It is no good relying on company searches in a climate where identities are so easily hijacked. Drilling down into an individual’s or organisation’s identity is essential, to uncover all of the public information available and checking or cross referencing this wherever possible. When investing several £100,000 or millions, surely it is worth checking to see if a director is who he says he is and lives at his stated registered address? For a few pounds this, and many other details, can be so easily verified.

Mark Jenner is a forensic accountant specialising in fraud investigation and fraud prevention.

According to the Federation of Small Businesses (FSB) some 20% of all crime takes place on business premises. When you think of all the theft, murder, drugs and the like, this is an awful lot of crime!

The reason of course is that businesses are the target for all forms of fraud – employee fraud, creditor fraud, supplier fraud, Internet fraud…the list can go on. You should not wait until your business becomes a victim as it inevitably will at some point, do something about it now.

Apart from the obvious security issues for your assets, you need to put together a fraud reduction strategy that will help protect your business from various types of fraud, phishing, pharming, identity theft plus hacking and virus threats to your IT systems.

Your data needs protecting also. Even apparently simple information such as your customer lists are valuable and you do not want your employees giving it to your competitors. The data can also be lost through burglary and criminal damage to your premises. Think of the effort that would be required trying to recreate this information.

Remember to vet your employees when recruiting. You want trustworthy workers who will not put your business and assets at risk. Resumes very often contain falsehoods, and at best exaggerations. Make sure you take up references, check periods of employment and question what an applicant was doing in a “gap” period. Perhaps they were doing time at Her Majesty’s pleasure for fraud! Yes fraudulent employees do commit the same crimes time and time again, moving from one complacent employer to another.

Complacency is the name of the game when it comes to fraud risk. Although it does not always pay to be overly oppressive in your anti-fraud policy and cause resentment and even fear amongst your staff, a tightly controlled work place will undoubtedly prevent the fraudster striking or at least make him think twice before having a go.

Mark Jenner is a forensic accountant and fraud expert advising companies on cost effective ways of preventing fraud.

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.

I was reflecting on the direction that my fraud investigation case portfolio would be taking over the coming few years – part of the anticipation many of us have about the fall out from the global economic downturn that is currently facing us. I think that my focus will be largely on frauds arising from companies that have gone bust. This is the time when the inner workings of a fraud are exposed, and thefts and defalcations would often simply carry on as long as a company is healthy. I have investigated many businesses that have been abused by the fraudster for many years, have passed through their annual audits with flying colours only to become exposed due to an unfortunate incident such as defaulting creditors or litigation that causes them to nosedive. A recession can crystalise such problems of course.

Do not be deceived into thinking that the recovery will protect those frauds that are currently taking place!

Commentators are split between those that say that the “green shoots of recovery” are showing and those that say we are bouncing along the bottom of the recession still.
In a way they are both right! The recovery from what is accepted to be, for the UK at least, the deepest recession (in 100 years?) will be complex. Just because houses are selling and yes, some green shoots are showing, it doesn’t mean that the throwback from the irresponsible credit problems of recent years will be swiftly cleared up.
Insolvencies are increasing and practitioners, in London at least, are busy. However, the floodgates have not yet broken and we don’t yet have a tidal wave of administrations, receiverships and liquidations revealing a vast array of fraudulent activity. I think that it is still to come though, with reports saying that many businesses are teetering on the brink. Just because we are making progress with mending the economy does not mean that the problems are over for many.
The ease with which many companies are phoenixed using the “pre pack” administration tool is open to abuse. The regulators are wise to it and look closely at obvious examples. This is clearly an area where fraud will come to light in the coming months and years – and the process will be examined in more detail in my latest research article on my Fraud Advisory Website.
Read my regular investigators diary blog for further fraud developments resulting from the Global Credit Crunch!