Mark Jenner & Co Limited – Forensic Accounting Services

The Labour government has been criticised widely for the huge raft of legislation it has introduced in its 12 or so years of reign. Much of it has been lengthy and often arguably unnecessary. The burden of regulation on any business attempting to obtain business loans and trying to struggle through the current down turn has increased and is significant.

However, there must be credit in the attempts being made to improve the anti-fraud and white collar crime framework within the UK. The Proceeds of Crime Act 2002 introduced what some say are draconian powers of confiscation for the authorities to use. Draconian they may be but that is fair enough when they are used against the ones they were designed for – the organised criminals with the obvious trappings of unearned income. There can be some criticism when the letter of the law is used to attempt to obtain large sums from petty criminals with default sentences when they can’t be paid.

One bit of legislation that makes you wonder who is actually writing these laws is the Fraud Act 2006. I know that many of the regulatory authorities that I work with are a bit dubious about this Act. Those police officers and prosecuting lawyers tell me that they were happy with the Theft Acts and the Common Law offence of conspiracy to defraud. The Fraud Act was meant to codify these and other areas - and it may be that using it will require a few more years of testing through the courts.

I did note in the Fraud Act that some Companies Act style amendments were contained within it, whereby the prohibition on directors loans, quasi loans, credit transactions and related transactions had been abolished and replaced by a requirement for shareholder approval. Breaches are no longer criminal offences and the de minimis level for needing shareholder approval has increased from £5,000 to £10,000.

My first impression is that this will lead to a huge increase of petty frauds in the £5 to £10,000 range.

New legislation, Fraud Reporting Centres and Strategic Fraud Authorities are fine and to be admired. However, it is no substitute for investment at the sharp end. We need stronger regional police economic crime units who all have access to fraud investigation and experienced forensic accounting resources. This is really where a public and private sector liaison would work, and was one of the ideas behind the various regional fraud fora that have been established around the UK.

If a person is defrauded he or she must present a clear cut case to the authorities. It is no good shouting “fraud” – it needs investigating and presenting clearly. Of course this is a hurdle that many victims fall at and the fraudster escapes to ply his trade again somewhere else. Those that do investigate, even employ their own forensic accountants to build a financial case to present to the authorities, can be equally at a disadvantage if they get the investigation wrong.

Say for instance a company decides to investigate a £9,000 director loan that is thought to be defalcation by the director. The director is not committing a crime under the Fraud Act - the matter will likely be civil. Therefore the police will not be interested and it will be hard to recover such unauthorised borrowing. There are still difficulties with more substantial “borrowings”. Say £50,000 is missing and this time it is fraud. The culprit is not presenting a defence of taking the money as a loan – he is simply denying the matter. The Defendant may argue that he was simply seeking tax relief by exploiting timing differences in respect of any payments received, and that he was planning to pay the money back next fiscal year!

Any accusations made during an investigation will not help, the director may simply leave citing constructive dismissal and the business may end up paying out as much and more than it had already lost in compensation awarded by an employment tribunal.

The point is that if the police are to enlist the help of the private sector in the fight against fraud, funded by the victims, then they should have sufficient resources employed to monitor and assist with the private sector enquiries. This will enable them to be carried out properly and in a way that will result in a successful prosecution for the authorities, civil asset recovery for the victims and/or justified and successful confiscation proceedings that will help to fund both the authorities and the out of pocket victim.

Mark Jenner & Co is a firm of Chartered Accountants that specialises solely in forensic accountancy. Although services do not include normal accounting lines such as auditing, preparation of year end accounts and the provision of tax advice, a forensic accountant must be competent in all these areas in order to be able to examine financial records, often produced by accountants, and provide an unbiased and “expert” viewpoint on their content.

Forensic accounting techniques are used by investigative accountants to look at financial records, dig into their background and present a clear and concise account of what they mean and how they impact a particular matter that they have been asked to consider. Forensic accounting techniques are not the same as normal accounting methods, such as auditing techniques or methods for considering tax issues – but they may include the use of these skills along with investigation techniques, legal understanding and a natural tenacious desire to uncover a hidden issue.

A forensic accountant is an expert accountant and experienced business advisor that is asked by one party in a dispute to provide clarification and opinion concerning the issues being debated. There are a wide range of circumstances that can involve the need for forensic accountants. These can range from valuing assets for one or both parties in a matrimonial dispute in order that a division of wealth can be made, to establishing how much profit has been lost as a result of a factory stoppage that is being blamed on another party. Quantification of the value of damages or losses in order to assist with a claim is a big part of a forensic accountant’s work.

However, one of the biggest branches of forensic accounting is focused on crime. In particular financial crime or, in other words – fraud. This is the area of work that Mark Jenner & Co focuses on. Indeed the general public often associate fraud with forensic accounting. Fraud by its very nature involves some form of accounting anomaly or financial deceit. It is the manipulation of accounting records by business criminals (white collar criminals) to hide the theft. As such, one of the most important persons needed to investigate and deal with fraud is the expert accountant.

It is the financial and business expert that is able to understand the accounting evidence in order to recognise, or unravel, the fraud. He or she will look for the reasons it was possible for the fraudster to commit the crime and try to discover the route the losses have taken leaving the victim company. It is this forensic accountant who traces these losses and demonstrates the ultimate destination of the money by analysing bank statements and other financial records when “following the money”. It is arguably the most important part of the fraud investigation because without it, interviewing suspects or gathering evidence does not have a focus.

When confronted with a new case, the forensic accountant does not have a specific set procedure. Every fraud is different, it is the unusual and new loophole that every fraudster is seeking in order to surprise an organisation that thought it had covered all the bases. The money trail is the starting point and establishing how the losses occurred and how much has been stolen is the first task. The forensic accountant must try to place himself in the fraudster’s mind and attempt to answer the question “how would I steal the money?”

The forensic accountant may enlist the help of other competent accountants to analyse bank statements and collate data. He or she may often use a victim organisation’s own resources. Sometimes accounting software is utilised to make the repetitive tasks easier, such as IDEA for Windows or Altia statement analysis software. Spreadsheets are by far the most common tool for collating vast quantities of records and analysing unusual events within normally repetitive data.

It is the interpretation of results and provision of opinion where the forensic accounting skills are most valuable in any fraud. An opinion may have to be supported when under cross examination and the other party is not going to simply accept one persons say so. It can be very lonely in the witness box for a forensic accountant! However, a good forensic investigator will only present balanced and independent opinions that are based on a thorough understanding of all the facts.