For there to be a meaningful fight against fraud there needs to be a legal system capable of dealing with the cases brought by the prosecution authorities. There is no point beefing up the police fraud squads and giving them resources (which should include adequate funding for forensic accountants) to investigate fraudulent activity if the cases are going to falter at court.

Why would they do that? If a criminal trial is not managed properly and proportionately it will either fail completely leading to a re-trial or an appeal. This happens a lot and is the biggest reason why costs of dealing with criminals in general are so high.

The Legal Services Commission comes under fire a lot – not just from this blog site! The Daily Mail yesterday (2nd February 2009) reported the gross waste of public funds by the LSC. Audits have revealed that they have paid some £25 million too much to criminal defence lawyers over the year. If a public auditor is able to uncover £25 million wasted out of a budget of £2 billion per anum then just think how much a proper fraud investigator would find!

This may sound a bit of a sweeping statement, and is based purely on anecdotal evidence. But do not forget that as a forensic accountant I not only get paid for a lot of my work by the Legal Services Commission but also deal very closely with firms of solicitors and barristers that do also. Yes I do see some barristers getting paid £1 million each year from public funds, but I also struggle myself to receive ordinary market rates for my own work.

Sometimes I must argue my case with an LSC case worker that is questioning a quotation that I have submitted. Having done these sorts of jobs for over 15 years I usually have a good idea of how long they will take and what resources I will need to apply. It is not always easy to translate these ideas into a recipe for my costs and sometimes have to argue whether or not each of 10,000 documents will require 20 or 25 seconds to review! I know that I will need a week and a half or so but putting it into simple science is not always so easy.

Apparently since the 1980s spending by the LSC has multiplied 7 fold. Its not surprising – forget the published inflation figures – in 1983 we bought a house for a price that we would easily have to pay 12 times more for now. That aside, the past decade or so has seen the labour government increase the amount of legislation in place many times. The Proceeds of Crime Act 2002 is only one example of many new laws that were introduced, were lengthy and ill conceived. They have led to substantially more work needed to be done by the Defence solicitors and barristers to prevent miscarriage of justice. I have assisted in some of this and know how much time can be wasted by the Crown.

I would rather be putting the fraudsters away any day, but am happy to present a truly interdependent stance within my Fraud Advisory Services work portfolio and act as expert accounting witness for the defense in white collar crime cases. Because the Crown tends not to prepare financial cases in a safe fashion, often by not utilizing forensic accountants, there is much scope for checking and representing the case by the defense. My work in this area is not intended to get the dguilty off, but ensure that their case is presented at an accurate level of severity so that the courts can award a just sentence. If the LSC continue to be criticized for waste and their budgets cut accordingly, who will be doing the essential fraud defence work to balance the system?

Having spend the best part of two days writing my latest newsletter, printing it, wrestling with getting a colour header (and failing), signing it and stuffing around 750 into envelopes with a covering letter, I did not feel like spending the last hour or two of today, the first day of December, doing any proper work! Actually I did have help with my mailshot so I shouldn’t grumble too much.

Writing the newsletter always makes me take stock of some of the current issues that affect us forensic accountants. This time I noticed that professional negligence of accountants and lawyers have been figuring rather a lot recently through a number of cases that I have been doing recently.

When looking at accountants’ obligations these days it is easy to see why they fall foul of the regulators’ interest from time to time. An accountant is the very veneer every organised criminal needs to assist with laundering his proceeds of crime! Criminal Proceeds and Money Laundering are of course very big now – especially since the Proceeds of Crime Act 2002. Some say it has draconian provisions – that allow an errant accountant to face up to 14 years in jail if they are found guilty of assisting in the laundering of the proceeds of crime.

This may seem harsh, a professional should have client confidentiallity surely? No, not so, the professionals must act as gatekeepers in the authorities’ fight against crime. Even a lawyer cannot claim legal priviledge if trying to conceal money laundering from the authorities.

Accountants are firmly within the regulated sector, as far as Anti Money Laundering Guidelines go. This means that they must carry out KYC – know your client – checks. Also, if they come across something untoward in their client’s records they must make a suspicious activity report (SAR). So accountancy is a regulated activity. However, much of forensic accounting is not!

If I provide expert witness services to the police, I hardly need to verify that they are the authorities that they say they are. I mean – meetings are held at the police station….! If I work for the defence, I hardly need to report the details of the fraud to the authorities who are already investigating it. In fact, the Money Laundering Regulations do say that publicly funded work is not a regulated activity.

But, if I should be asked to investigate for a private client I will most definately need to have regard to the KYC and SAR requirements like my normal accounting coleagues.

Our criminal justice system has grown up over centuries as our society has progressed and is thought to be fair. Others criticise us, saying perhaps we are too soft on criminals. However, being magnanimous is probably better than being ruled by autocrats and tyrants. Better than having a hand chopped off for stealing. Better than being shot in the back of the head for actively opposing a regime.

The criminal justice system provides a balanced approach to dealing with crime. We believe in someone being innocent until proven guilty – the right to be heard by your peer – these are the mainstay of our whole modern way of thinking and has served us well on more occasions than it has failed. A very important element of this system is the right of criminals to present a case to defend themselves – the right to be heard. This is fundamental.

Criminal defence in the UK (or criminal defense in the USA) does mean that the whole judicial system is somewhat adversarial. We feel that the actions of the regulators and prosecutors must be tempered by a criminal defense system to ensure that they do not ride roughshod unfairly over the criminals, some who may well not be guilty, or as guilty, as their accusers say.  We must make sure that the system is properly managed, adequately funded and reaches the results that everybody wants – to punish and deter the criminals and to recognize when a person is not guilty or perhaps not as guilty as the indictments suggest.

The application of the Proceeds of Crime Act 2002 in the UK can provide an example of potential problems arising if the criminal defence team is not able to challenge the prosecution’s position. If somebody has been convicted of a crime they will have to serve a sentence proportionate to that crime – maybe in jail. But with POCA it is necessary to make sure that crime does not pay – so no longer can a person rob a bank, do time in jail only to be released a rich man! The conviction is now followed by confiscation proceedings. This is intended to stop crime paying – to take away the wealth of the lifestyle criminals.

However, the provisions within POCA allow for the possibility that somebody who steals only a modest amount may still be presumed to have a criminal life style. The Crown will apply for confiscation of everything the criminal owns – plus what he has assumed to have received – for several years previously. Obviously this needs to be challenged as the assumptions can be sweeping and need not be underpinned by evidence. It is up to the criminal defense team to show assets have been paid for with legitimate funds and that are receipts over the preceeding years are not from crime.

Sometime it is difficult to find adequate accounting evidence to show this, even by using forensic accountants, and a person is ordered to pay back more than he stole, more than even he possesses. If he is unable to do this he is in default and may be given substantial additional custodial time! This is why sufficient funding for the criminal defence team, including for a forensic accountant to do a full and detailed response to the Prosecution’s case, is essential if justice is to be done.