Can We Follow The Money?

As an accountant, I watch with interest as the Chancellor announced each of the measures put in place to assist individuals and businesses through the difficult times caused by the Corona-virus. I fear that although the measures may be essential for many, there will be a massive amount of fraud to deal with once we return to normality and begin to count the cost.

If you take a quick look at the profile of the fraud and criminal work I do each year you will perhaps know why I am worried. A substantial part of the work I do involves examining cases of tax evasion, money laundering or opportunistic fraud. With many £100s of billions seemingly available to either lend or give freely, the scale of the potential fraud in the Covid 19 crisis is set to be massive.

Insolvency Frauds

Some time ago when working within the large accountancy firms, I spent a number of years specializing in fraud coming out of insolvent situations – receiverships, liquidations and bankruptcies etc. I know that when any business is ailing, the proprietor will do anything they can to ensure that their personal loss is minimized irrespective of obligations to the disadvantaged creditors.

For example, a business owner may ensure that they continue to be paid healthy dividends when the company is failing, by factoring debts to get the cash up front. Assets can be sold and leased back, and tax bills can be “forgotten” when the writing is on the wall.

Of course, there are measures put in place by legislation to protect against this. As ever, the clever fraudster finds ways around these and monies are regularly moved beyond the reach of the Insolvency Practitioners trying to recover assets. Recovering assets is a major part of a fraud investigator’s business, but only a small proportion are ever recovered and very often these go to pay the professionals involved. We all know how small the dividends can be if we are a minority shareholder in a company that has gone bust!

So… now we are seeing small businesses receiving loans of between £2,000 and £50,000 that are fully guaranteed by the UK Government (i.e. we the taxpayer). If they are fully guaranteed they will be freely given out by the banks.

My fear is that these loans are being given to prop up already ailing businesses, where the recovery of such modest amounts will not be worth a serious asset recovery professional getting involved! In due course, dealing with loan recoveries from the multitude of bust companies will be dealt with by the Official Receiver and/or handed out in bulk batches (cheaper by the dozen) to small firms of Insolvency Practitioners.

It appears that some commentators think that there will not be enough Insolvency Practitioner to satisfy the demand – there will certainly not be enough with the requisite asset recovery skills!

An Opportunity For Fraud

It appears that many companies are furloughing their staff. This is an expensive exercise for us taxpayers, and so we like to think the money is being put to good use. In my book, this does not mean paying Starbucks to furlough its UK staff!

However, putting the issue of unfair international transaction pricing aside, there are a lot of opportunist fraudsters out there who will furlough their staff inappropriately, and maybe even continue to use them profitably.

The problem is that everybody is allowed to furlough staff, regardless of need. The benefit is being given out to those that need it and those that don’t. Remember the football clubs that were going to furlough all their admin staff and yet keep paying the players at full rates!

Separating those that don’t need benefit (but are making legitimate claims) from those that need it (but don’t qualify) and also from those that may or may not need it (but are claiming fraudulently) will turn out to be a nightmare. It appears from what is happening that the most important criterion is getting the money out, with rather weak threats that claims will/may be checked [for legitimacy] at a later date. Cleaning the mess up afterwards is going to be difficult!

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