Fraud Advisory Services

A newsletter for fraud practitioners

The New Year has got off to a flying start with a number of new cases waiting for me on my return from what must have been the coldest holiday on record – I spent the first few days of 2010 in New York!  Suffice to say it was not much warmer on my return and unfortunately my current work load does not include the prospect of a visit to Dubai or the Cayman Islands.

However things are warming up in the expert witness side of my work with a number of trial dates in the diary between now and Easter.  It does seem that contrary to recent thought that experts are seldom called to give evidence in fraud trials the reverse now seems normal.  The reason always given for steering the expert away from the witness box was because of the complex nature of the crime and therefore perhaps the potential for tying the judge, jury and even the expert himself, in knots!

Accountants in the firing line – who said we were boring?

Lawyers, police and even teachers get their own TV soap dramas but accountants never seem to feature – that is other than the occasional cameo appearance and the subject of yet another boring accountant joke!  However, we number crunchers can get into some scrapes, as recent news headlines will confirm.  There is the case of the ex-KPMG trainee who made £25,000 false expense claims from his employers to fund an online gambling habit.  His punishment was a severe reprimand from the ICAEW and a 12 month exclusion from this professional body.  Seems fairly mild when compared to another accountant who is currently facing charges of money laundering and conspiracy to defraud £millions via a Ponzi scheme. He was the crooks accountant and apparently failed to spot the suspicious activity of his clients.  He could face four years or more in jail for making a few pounds in what he thought were legitimate professional fees.

Vantis, the UK listed national accountancy firm are in serious cash flow difficulties (according to their auditors Ernst & Young) which appears to be as a result of involvement with the liquidation of assets relating to the multibillion dollar fraud masterminded by the American financier Allen Stanford. The US authorities have frozen the assets which means that Vantis is unable to be paid for its services.

I can’t believe that a capable scriptwriter could not come up with something to rival “The Bill” with all these frauds going on!

The Government is as much use as a chocolate fireguard…

When it comes to scaling up the fight on fraud the response by the Government is unlikely to make much impact. £29 million was earmarked as a budget in 2008 for developing a cohesive UK approach to the problem of fraud.  So far we see the advent of the National Fraud Strategic Authority (NFSA) which, true to form for a publicly funded organisation, has already its first name change to the National Fraud Authority (NFA).  But more to the point, what is it doing to bring together the police fraud squads, private sector fraud resources and other fraud regulators to become an effective front against the perceived easy pickings that fraud seems to be? At least the Attorney General’s office has updated its links from “NFSA” (which had stopped working) to “NFA” on its web site now and we can all see the program of work they are embarking upon. Or can we?

The stated purpose is to “…draw together the counter-fraud community…” This implies public sector fraud prevention bodies and does not mean more trained police fraud squad operatives with access to investigation resources.  Reading further the NFA website suddenly admits that “…we are not solely responsible for putting the NFS (National Fraud Strategy) into practice…” I worry that we have another government quango spending our money and very little will get done.  I suppose time will tell.

All fraud news is bad news?

It seems that we always complain about the fraud framework, whether it be fraud prevention by the authorities, prosecution, or defending white collar business crime. It is the nature of the business…it is a big problem.

Fraud causes so much trouble and strife for millions of people that it is no wonder that the few real anti-fraud regulatory forces we do have guarding us become a little over-zealous in trying to put the culprits behind bars.  This in itself creates a real need for a robust criminal defence industry in order to balance the adversarial system that results.  If the police generally do not use forensic accountants to present their frauds, the defence certainly needs them to temper the allegations in many cases.  The general consensus is that the Legal Services Commission’s proposals to shave 20% from the expert witness budget available to the defence teams is going to result in fewer capable experts being available in the future.  Access to justice may well be denied for some – one thing is for sure, LSC will no longer be funding expensive city centre offices – which may not be a bad thing?

Balancing quality with profits has always been difficult for us professionals, who have relied upon a wave of business expansion to be able to carve an acceptable slice of remuneration for themselves.  Now that we are trundling along the bottom of a downturn, regardless of the miniscule percent of recovery alleged for the recent quarter – there is even more need for investment in the fraud sector.  Then we might see a little less talk of co-ordination of fraud resources and a lot more actual investigation, prosecution and prevention of fraud.

By Mark Jenner – Mark has been a forensic accountant for over 15 years specialising in fraud for most of that time. He heads up a dedicated fraud advisory service line focusing on expert witness assignments and fraud investigation. Regularly attending court to give oral evidence, his portfolio includes criminal fraud prosecutions, proceeds of crime and money laundering offences, corporate enquiries (including insolvency investigations) and asset tracing assignments.

(This newsletter is circulated in hard copy format around solicitors and baristers throughout the UK)

Welcome to the second edition of “Fraud Briefing” this year.  Following positive feedback gratefully received from many of you, I am now planning to publish this newsletter every two or three months. Given the vagrancies of the postal system and a recent flurry of new cases I have decided to send this one out in good time and apologise if this festive edition reaches you before the season begins.

New cases picked up recently include old favourites of criminal defence frauds, money laundering indictments and Proceeds of Crime confiscations, but I was glad to get the opportunity to work on another Ponzi based scam. This time my interesting task is to look at the professional involvement of an accountant providing services to the investment fraudsters. I also seem to be receiving a few enquiries with an international flavour, possibly because I have put in more commitment to my Internet marketing through technical article writing?

Insolvency cases – when will the floodgates open?

One recent approach from an individual residing in the Far East has now turned into an investigation into a “pre-pack” administration in the UK. Pre-packs have been the subject of much criticism, being a process with little regulation and making it far too easy to establish a “phoenix” company when businesses fall on hard times. I understand that such has been the public complaint that the Insolvency Service carried out a review of the 572 pre-packs that took place in the first six months of 2009. It is astonishing to learn that 35% of these did not comply with government legislation and that 17 were deemed serious enough to be referred for full investigation.

My source in the Insolvency Service tells me that  the typical problems being seen are when a company diverts its trade and debtors elsewhere in order to demonstrate insolvency. Then the administrator is astonished to find that the company that he sold the business assets to is suddenly being managed by the same directors as before.

It is still asset stripping…the diversion of trade prior to a pre-pack seems to continue the theme that I discussed in my previous newsletter. Is there no end to the methods devised by the fraudsters for obtaining value from a business and then leaving the creditors to pick up the pieces?

The future of criminal defence under threat?

I don’t want to be alarmist or jump the gun, but the intention of the Legal Services Commission to reduce expert fees in criminal defence cases by 20% has given me a number of sleepless nights over the past two months.  I have always prided myself on managing a broad portfolio of fraud related assignments, from investigating fraud, asset recovery and assisting the regulators to providing expert accounting witness services to the defence team in criminal fraud and proceeds of crime cases.

In most areas of my work each new assignment brings different issues and varied circumstances in which fraud has occurred.  However in criminal defence work a pattern really does emerge and “practice” definitely does make perfect.  Having worked as an expert in criminal defence matters for many years now I like to think that my approach has become efficient and most certainly cost effective as far as LSC funding is concerned.  It does seem rather a shame that they are now threatening to make good on their proposals originally aired in a consultation five years ago and currently being discussed again – that defence experts are paid at rates commensurate with  prosecution costs or more aptly…public sector pay scales.  This is a ridiculous hypothesis and a couple of objections (I know there are many more) spring to mind:

• The Government fraud regulators, prosecutors and the LSC have all seen fit to waste astonishing sums of money on pursuing certain headline causes when the political will has been there and then complain that they do not have enough to manage their day to day business – think of the £15 million Rover investigation, £60 million for the London Underground fiasco…; and
• The rates they are proposing are more likely to be in line with public sector remuneration levels, yet we do not have a guaranteed pension, secure job and flexible hours that might make the low rates more bearable.

I am sure we will all muddle through.  It may be that the poorer criminals will not have the access to justice that they have enjoyed in the past.  It may be that sophisticated fraudsters will be able to fund their high quality defence and the less successful criminals take what they are given. 

What will the New Year hold?

We wait to see what will happen with expert funding as we do with all the other areas of public sector funding cuts.  In the meantime it has to be business as usual.  I believe that I am in a position to continue to give personal and efficient attention to criminal defence cases, small and large, with an experienced team of criminal defence forensic accountants behind me.  I will also be looking to that area of expertise that gives me much satisfaction – recovering assets in insolvencies.  This I feel will become  hot topic soon as I do get the feeling that there is a huge volume of businesses teetering on the brink – despite the ever hopeful claims of being out of the depression/recession. 

Corporate asset stripping will continue to keep me occupied it seems, and as the world shrinks and the Internet grows I am alert to the possibility that more and more of my work will involve telephone calls in the middle of the night from different time zones.  Fortunately there is less likelihood of foreign travel now given the ease with which we can communicate – but I am having to brush up on my “KYC” due diligence procedures!

I wish you a Merry Christmas and a Happy New Year.

Mark Jenner