Mark Jenner & Co Limited – Forensic Accounting Services

A couple of years into running my own forensic accountancy practice and business is brisk.  There was always the worry that as sole practitioner expert, the lack of peer support would mean difficulties arising when case deadlines clashed.  However, such are the vagaries of the court system that even when reporting deadlines are tight, I am invariably finished working months before that matter eventually comes to court.

I have found it easy to balance half a dozen or more current cases and when two, three or, on one occasion, five potential hearing dates clashed during the same week, I learned not to become unduly worried.  In the last example all five cases were put forward.

Investigating fraud is not confined to running after the likes of multi billion International Ponzi thieves like Bernard Madhoff and Allen Stanford.  As a forensic accountant focusing on fraud (including all financial aspects of crime), I could be examining the records of an insolvent company for misplaced assets, following up directors’ allegations of stolen money or analyzing bank statements and accounting records in a criminal fraud prosecution.

Currently I am tracing potential hidden assets in acrimonious divorce proceedings as well as assisting with the defence in an extradition case against a businessman alleged to have committed wide-ranging fraud.  These are two very high profile cases and illustrate the diversity of the different types of fraud investigation that I am asked to carry out, and illustrates why the forensic accountant must have an extremely flexible approach to the work that he does.  He, or she, must continually draw on a combination of legal, financial and interpersonal skills in order to provide the highest quality of a service that can have a material influence on a person’s livelihood, worldly goods and indeed their freedom.

A fraud expert must first and foremost be a financial expert, understanding the interaction between vast quantities of bank statements, accounting records and financial instruments.  This will involve some form of accountancy training at the very least.  But interview techniques, evidence gathering and handling, data interrogation and understanding the interaction of different legal arguments, case law and business regulations as well as an ability to conduct efficient and effective technical research is also needed.

According to the Association of Fraud Examiners, observing the responses of the defendant in interview enhances the quality of any investigation.  The advice is that this insight should be used along with a thorough understanding of the business and financial framework surrounding the particular case to support the more detailed aspects of the financial investigation.

This is fine in principle.  However, I fund the luxury of having unrestricted access to the various witnesses, suspects or defendants, and the time to fully examine the surrounding business environment, including the appropriate regulatory framework, to be seldom available.  Those paying the bill often do not see such peripheral work to be necessary.  In practice, I often find myself at the edge of a case, with specific instructions to undertake inquiries into discrete areas.  In fact, I often propose this myself, as a way to sell cost effective services to the vast majority of my clients who do not have unrestricted budgets.

When this happens, does this mean that I feel less attached to the work that I do and does it mean that the quality of my service is reduced in any way?

A lot of my work results in a report or giving evidence as an expert witness. In this case there is a strong argument for being detached from the work that is carried out.  This is particularly important if the task is to reduce an over zealous criminal benefit figure on behalf of a convicted drug smuggler. On the other hand, I may be asked to defend somebody who is being wrongly targeted by an insolvency practitioner to repay monies a bankrupt estate might not be entitled to. There is a chance that feeling anger towards a drug dealer or being sorry for an unfortunate businessman might influence an otherwise impartial report.

A criticism against the fraud regulators such as the police investigators is that they are very partisan in their approach.  They will judge the outcome at the outset and form opinions that are swayed by their inquiries.

I must not judge what is right or wrong – nor must I determine what is the correct level of penalty to pay.  To be of any use, my work must remain objective and therefore, in most cases no it does not matter that I become a little detached from the case that I am dealing with.

As for the quality of the service provided, I accept that I would prefer to interview all the parties involved and consider all aspects of the case as well as, for example, the basic instructions to quantify the losses that have occurred.  However, where it is necessary to have this additional insight in order to properly approach any matter I will include the need and its associated cost up front when quoting for the job.  Essentially there are occasions where simply analyzing the accounting records in a fraud investigation is not enough, and responses and nuances from interviewing suspects in conjunction with perhaps a knowledge of their working habits will provide a more robust understanding of the way events occurred.

There is no doubt, when the opportunity to conduct a full investigation, including determining which avenues to follow and following a trail of evidence to an unknown conclusion, that the adrenalin flows and the full spectrum of a forensic accountant’s skills are tested as they will all be essential for ensuring the quality of the work provides the outcome that is required.

(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