Fraud Advisory Services

When compiling the list of top ten Christmas scams for people to watch out for, the ones targeting relaxed people at home and in a festive mood spring to mind. However, if many of the population are more vulnerable at this time this does not mean that they should be complacent at others. All these frauds are operated throughout the year, it is just that at Christmas many seem to let their guard down and are more trusting.

Top ten scams

1. Sale of counterfeit goods – with millions on the look out for presents, the chance of a bargain buy is attractive. This is the time when counterfeiters have a field day. Rushed purchases and trying to beat the other shoppers means that less care is taken and sometimes the obvious overlooked. Do not buy from anybody other than a reputable purchaser.

2. Following on from number (1) above is the fraudulent on line auctions. My wife greeted me the other evening with the news that she had found the Mulberry handbag she was looking for on eBay. It was priced at £100 – could I believe her luck? Well the bag retails for about £800 in the Mulberry stores and you just might get £50 off in a high street retailer such as House of Fraser or John Lewis. Fortunately she saw sense and did not buy. The bag was either counterfeit or would simply not turn up.

3. Credit and Debit card fraud. With the increased use of plastic to smooth the Christmas buying out, less attention is placed on the transactions we make when our statements arrive. The fraudsters are more active during these busy periods, stealing your details and spending at your expense. Make sure you spot any discrepancies so that you can quickly begin to sort the matter out with your card provider. Otherwise you may be liable for continued fraudulent use for some time!

4. Fraudulent lottery wins. It is the festive season when a lot of poorer people feel the pinch. Especially the elderly are highly delighted when they receive notification of a lottery win that they did not know they had entered. The only trouble is that because it is a lottery situated abroad they have to pay some money upfront as a highly plausible “foreign transfer tax” to release the money.

5. Identity theft leading to fraudulent money transfers, purchases and loans is more prevalent during the period of increased transactions for presents that are occuring. You may overlook your normal diligent approach to throwing out personal details with your rubbish or the way your credit card is handled as you are visiting restaurants, bars and clubs more frequently at this time of year. The crooks know this and step up their activity.

6. Fake emails bring good returns for the “phishers” at this time of year. Many people take a break and therefore Internet activity goes up.

7. Loan scams are a problem over the Christmas break as many people find the expected spend at this time too much, especially those that are suffering as a result of the economic downturn. The opportunity of a small loan to tide you over the break is attractive but make sure you know what you are signing up to! Many of these short tem loans have an extortionatly high level of interest applied, which becomes crippling if a payment is late. Stick to conventional and regulated borrowing rather than a pay day loan or borrowing from disreputable sources.

8. Premium rate phone line scams always seem to increase the volume of trade they do at this time of year as a result of more people being on holiday and more being receptive to a bit of sweet talking over the phone. Do not let your guard down - and if a caller asks you to key in a response do not comply – you will simply be opening your account to them!

9. Rogue door step sellers also like to find people at home. Some of these may be genuine tradesmen but most door to door callers must be treated as potential fraudsters. Be carefull not to let people into your home unecessarily. If they seem to want to come in when you are not interested they may just want to case your house for a later theft.

10. A particular favourite at this time of the year is the slimming or miracle weight loss solution. In fact any health product always does well at this time of year as we are very concious of the over indulgence we we have committed. Do not fall for the false promises and only buy goods that you want for the right reasons. Remember  – the best cure is moderate eating of the correct foods and plenty of excercise. There is no miracle solution!

The need for proper research when seeking a part time business idea from the Internet is  is essential if fraud is to be avoided. No retailer would buy a new business premises or shop without spending £1000s on due diligence investigations. He would get a survey, look at any accounting records for previous businesses and do a business plan based on the research done. Why should you invest time and money trying to start a new business working for yourself without doing the same?
There is no need to spend money employing somebody else to investigate, but there are a lot of simple steps you can take. Here are three of the most basic:

• First – read as much as you can on the subject. You can never do enough research. You will soon realise if a business idea is a scam or fraud. What you want to know is not only will it work, but will it work for you. The research may include surfing the net of course, but look for solid and respectable publications you can pour through. Have one on your bedside with a pack of post its for interesting snippets or chapters. Have a trade journal, print off reports – don’t just rely on marketing hype from your surfing!
• Secondly – once you have ascertained that there is a viable business idea, jot some numbers down. You dont have to be an accountant to see if the business is viable. There is no use paying say £500 for start up costs, having £100 going out every month and spending 10 hours a week on a part time business to make £200 per month. Yes it would pay for itself but is it really worth it. You might have £700 in the bank at the end of the year – on which you ought to be paying tax at your full rate. If it was just a part time business to earn some extra cash, 10 hours a week work for a £10 per week cash return is not great! Often the numbers look ok till you set them out in black and white.
• Thirdly – decide if the particular business is for you. For example Internet Marketing can work if you get it right – but only if you learn, learn, learn about the business and then are able to churn out several 100,000 words of articles every year. Can you learn about a complex subject and then have you the patience to write? – If you can say yes to both, then as the “blurb” says you can build a useful business that needs little maintenance.

As a fraud investigator I see a lot of business opportunities that are clearly frauds and some that simply need a lot of hard graft. I am looking at as many as I can on my dedicated web site to investigate which have potential and which are scams. Read about my daily approach to fraud on my investigators diary blog.

Support Publishing is a recognised term used for businesses that manage the publication of a range of items such as desk diaries, wall planners, pamphlets, magazines and books. The items will be used to promote a particular good cause. For example a diary might be prepared on behalf of a police sports foundation or a booklet might be published in support of child safety on crossings outside schools.

The intention is for the publication to be circulated to schools and community centres in such a way as to raise public awareness of the messages contained within, such as child safety, safety at work or the good work a charity might be doing.

Of course the publishing company needs to be paid for supplying the publication and there are two ways of doing this. The first is for the charity or good cause to approach the publisher and commission the required item. They may order and pay for several thousand desk diaries to circulate around potential donnors. Details of the charity and the work it is doing will be contained within the diary. This is no different from the marketing products that may be commissioned by commercial companies to raise awareness of their brands.

The second method for funding the publication is for the publisher to include commercial advertisements. An advertser may be happy to fund an entry in a good cause booklet knowing that the public will associate their name withe the good cause and in doing so raise the commercial awareness of their brand. In theory it would be a good method of marketing.

There is nothing futrther to mention concerning the first method of funding. However, the second method is wide open to abuse by con merchants who see this as an easy way to solicit money from the millions of gernerally small businesses around the country who find it very difficult to say “no” when asked to support a good cause locally while at the same time gaining valuable marketing exposure.

To illustrate the support publishing practice that has grown up in the UK over recent years consider the case of McPherson Stone Limited and Cavendish Green Limited. These support publishing companies have been well reported in the press following what was apparently the greatest number of complaints to Trading Standards offices around the UK ever received for one business. Because they were the same business, one simply setting up and taking over when the regulatory heat became too much for the other. Both companies have now been closed down by the authorities, there were foreunner companies and there are currently subsequent companies still operating!

The business produced quarterly magazines aimed at off duty police, ambulance and fire service personnel. The publication included a few articles of general interest, recipes and puzzles together with around 200 advertisements for local businesses. Each magazine was produced on a regional basis, with the same content but with paid advertisements from businesses in each region.

200 advertsiements through 50 regions, four times a year at an average cost of £250 per business gives a potential annual revenue of £10,000,000! When you consider that each advertiser received a copy of the magazine and a few hundred were distributed between a dozen or so police stations and ambulance centres – only about 50,000 magazines were printed each year.

Each magazine cost around £2 to print and post out. This leaves most of the £10 million to pay the dozen or so telesales staff around 40% commission and the rest, the lions share, going to the directors running the company.

The business worked because the sales team were self employed on commission, and used various means to hook the clients, whose names were simply extracted from phone directories and local papers. Most people dont like to say no when asked to support good causes, partcicularly if names of charitable causes are used as a hook. The first telephone call would spin the tale of widely distributed publications… “100,000s in your area” and solicit the interest. The second call, often only minutes after the first would be recorded and would exclude any detail of the false promises. It would simply confirm some details. The customer was often left somewhat bemused, thinking that they would make a final decision when they received their advertsiement copy for approval. However, what they would receive was an invoice with the only option for cancelling being the payment of a charge!

A large proportion of people will pay such an invoice not wishing to enter into any dispute. Those that knew their consumer rights a little better were more likley to bin the first payment demand or return it with a letter saying they did not wish to go ahead with the advertisement. But the support publisher has a plan for increasing the proportion of targets who pay from the initial 40% or so to around 60% or even 70% by a sequence of demanding letters and phone calls robust enought to shake the resolve of even the most resolute victim. In the illustration, the business even passed the unpaid bills over to another debt collecting business that it had set up itself to give the illusion of escalating seriousness in the matter. They even resorted to “door-stop” collection techniques and a video of the threatening behaviour of one particularly nasty instance was caught on the victim’s mobile phone and aired on BBC’s Watchdog in 2006!

That this is a fraud there is no doubt. However, it is a problem that is very hard to deal with. The methods used by the support publishers make it harder and harder to close them down, with sanctions being fairly lenient to date (director disqualification etc). It is likley that the Fraud Act 2006 could be a better route if it was possible to get the police economic crime units to take an interest. The trouble is they are very often unwittingly caught supporting these very cons by agreeing to take nominal quantities of the publications which they simply see as being “freebies”.

The telesales opperators in the business pay no tax. When investigating this particular support publisher I had a whistleblower contact me to say that all the staff used aliases and most were drawing supplementary benefit as well as earning £30 £50,000 per year!

So we have tax fraud, benefit fraud, Misrepresentation Act offences, Telecomunications Act offences, Data Protection Act offences and Fraud Act offences (plus the Company Act 1985 offences that I was investigating).

I tried to arrange a meeting with senior tax representitives from HMRC to inform them of the scale of the tax evasion, not only in the few companies that I investigated but concerning the industry as a whole, but the feedback was that theyconsidered the problem one that they could not deal with. The message was that theyw ould have to wait until legislation changed.

We eventually obtained a High Court Order to close the companies down. When the Official Receiver went in to the business the next day he found that the bank accounts had been stripped. Within a few days the business was back up running from the same (rented) premises.

Support publishing is a recognised problem within the Department for Business Innovation and Skills (formerly DTI/BERR) who continue to close these companies down only to have them reopen later under different names. Some open as partnerships or sole traders, having cottoned on to the fact that BIS will not investigate them then. The police are unlikley to have the time and therefore if they can make sure the complaints to Trading Standards are kept to a minimum by not pursuing debts too rigorously they will continue for the forseeable future to keep trading below the radar!

By Mark Jenner, forensic accountant and fraud investigation expert. You can keep up to date with his investigator’s diary blog.