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.

There is a definite rise in the incidence of employment fraud during a recession, though this will often only come to light in the months and even years following an economic downturn. Some employment fraud however will be discovered during the downturn, as hard pressed companies take a closer look at their finances and discover losses might have been taking place.

Recessionary pressure affects employers as well as employees. Cutbacks have to be made and it is often the case that a company is in constant review of its finances, looking for ways to survive let alone grow and make profits. There will be constant talk of “tightening of belts” and likely rumours of redundancies – even if these do not actually take place. This has a knock on effect on the employees, many of whom will start to feel insecure in their jobs.

This leads to one of the drivers of employment fraud due to economic downturn. There is a decreased loyalty shown to the employer because of the real or imagined layoffs. This can result in some seeing the opportunity for compensation in the form of helping themselves fraudulently! This tendancy is even more marked if there have been reductions in pay levels or even cuts in overtime opportunity.

The second cause of employee fraud during an economic downturn is the financial hardship experienced by the employees families generally. Even if the employee is secure in his own position, a family member might have lost their own job and household income is reduced. It might even be perceived pressure from the need to save more in case of much greater hardship in the future.

The third clear driver in the increase in employee fraud during a recession comes from the cost cutting excercises that an employer might be taking. Very often non essential positions are cut. These tend to be the middle management levels, not the productive workers and not those in ultimate charge. The trouble is that this is the layer of management that effectively controls fraud within a business. It is the layer of supervision, the division of duties and monitoring that creates a secure financial system. Remove some or all of this and large windows of opportunity for the fraudster can appear. It often happens that internal audit and dedicated fraud prevention functions are seen as non essential and down sized accordingly.

With an increase in employee fraud and a reduced capability to deal with it, when a fraud does occur a company might find itself in the position of having to call in specialist fraud investigators. The cost of employing a fraud investigator in a recession is an added burden in trying to out ride the downturn.