Fraud Advisory Services

First Stage Investigation Service (FSI)

Experience has shown that there are a vast number of smaller frauds being perpetrated which are not being investigated or dealt with in any satisfactory way.  These are frauds such as employee thefts or rip offs by suppliers such as builders where the financial loss may only be several £thousands.

Such losses can be serious for individuals or small businesses but often do not command the attention of the fraud investigation regulators who simply do not have the resources to deal with every fraud that is reported to them.  Very often they will ask for more proof or a better prepared case summary.

An alternative solution is to investigate the loss and commence civil litigation against the thief.  However, this is generally recourse when large sums have been lost as the legal and accounting costs are almost certainly going to be prohibitive.  It has been said that formal civil asset recovery through the courts is only worth while when sums of over £1,000,000 are being chased.

So what is the solution when your bookkeeper steals £10,000 from your business or your builder says you owe him another £20,000 to finish off the job after he has spent the agreed price?  Fraud Advisory Services recognises that these cases need a cost effective solution – to ensure a sensible and proportionate chance of getting your money back or ensuring that the authorities investigate so that you can make a claim for recompensing your loss.

A First Stage Investigation can achieve the following:

• By discussing the case with you and acting as a sounding we can help you to focus your thoughts and understand what options are available to you;
• All information sources will be considered and correlated as we asses the case, establishing the method and extent of the loss;
• The case assessment will be a presentation of the evidence in a format based on forensic accounting principles that can be presented to the authorities.  This is often all they require to commence a formal enquiry which can lead to prosecution, asset confiscation and open the avenue for you to make a victim compensation claim;
• The case assessment can be persuasive in achieving a negotiated settlement – thus avoiding expensive and lengthy litigation.

Example 1 – Employee theft

The case is evaluated and an assessment presented.  With your agreement a letter is sent to the fraudulent employee and another to the police.  The situation is safely contained and it will be possible to dismiss the employee with enough evidence for gross missconduct without fear of employment tribunals.  Negotiations may retreive the losses by negotiation with the fear of a pending criminal investigation (the police may decide not to pursue the matter if recompense has been made as it would not necessarily be in the public interest)

Example 2 – Minority Shareholder at a Disadvantage

The directors wind up a business in which you have a minority interest.  Your minority shares become worthless.  You then discover that the directors have started up in business again from the same premises and using the same assets selling to the old customer base.  The case is investigated and evaluated resulting in an assessment which will include a overview of the valuation of your shares and indications of any insolvency offences that may have been committed - with your permission letters are sent to the Insolvency Service and the directors.  The assessment can be used as pressure and quantification for you loss of share value.

Important Note – Using Specialist Fraud Solicitors

A very good solution when victim of a fraud is to approach a solicitor.  However, as all forensic accountants are not fraud experts, not all solicitors are capable of dealing with a fraud.  In many cases the right result may be achieved – but at great cost.  It is a legal lottery and in most cases it is better to only appoint a lawyer who is specifically experienced in the work required.

Fraud Advisory Services does not give legal advice.  For this reason we often work alongside lawyers investigating frauds and recovering assets.  As part of our First Stage Investigation we will review your need for legal advice if you have not already appointed solicitors.  Then, we will help you with your choice of firms and individual solicitors and ensure that your instructions to them are as specific as they can be to ensure that the costs are minimisied.

The cost for a First Stage Investigation is as follows:

• £1,200 + VAT – Basic service
• £1,500 + VAT – Basic service & ongoing telephone support
• £2,000 + VAT – Basic service including UK meeting & ongoing telephone support

The basic service includes telephone discussions, receipt of  any documents by electronic mail and assessment of the information received – leading to a report in the format of a letter to you setting out the quantum and details of the loss in a format that can be presented to the police, lawyers or perpetrators as you wish.  Also included is conveying extracts of the findings on your behalf to these parties and initial contact at your instruction where appropriate.

As a typical financial investigation by a forensic accountant can cost anything upwards of £10,000 and often much much more, we feel that First Stage Investigation offers the possibility for a cost effective solution in certain cases where formal legal, investigative and accountancy instructions would simply be too expensive.  If such an investigation becomes necessary, the initial work in a First Stage Investigation will of course count within a full blown asset tracing and recovery excercise.  Please contact us to discuss whether or not this service is appropriate for your case.

Prevention is better than cure – would seem to make sense in the case of fraud as it is in the case of your health. Fraud can cause a company to lose a great deal of money, or worse collapse completely. A company collapse due to fraud can be avoided by putting in a few measures that would greatly reduce the risk of fraud can cost far less than this.

The first step to take is for a company to accept that it is at risk from fraud and the attention of the fraudster. Many organisations fail to even accept this, then are surprised to find a black hole in their finances of several £100,000s. They do not believe that any of their trusted staff could be a fraudster. Accepting that fraud is a very real risk is the first stage – deciding that fraud is not acceptable is the next.

A company must tell all its staff, and often customers and suppliers as well, that it does not tollerate fraud. This is the fraud policy. It can be set out in a document which is circulated to all staff. Big corporations will publish a glossy booklet, a small business can photocopy a simple typed page. The important point is to communicate that fraud is not accepted and if discovered, action will be taken. This in itself can have the effect of greatly reducing the risk of fraud happening.

The next critical step in preventing fraud is to ensure that any previous complacency does not creep back in. This means that all systems are reviewed on a regular basis for weaknesses to fraud. Auditors often review accounting controls once a year at the annual audit – this is not enough nor is it frequent enough. Accounting controls designed to keep a financial reporting system working well are not designed for preventing the determined fraudster. For example a control that requires two signatures on a document can easily be circumvented by collusion.

By understanding how an accounting control can be circumvented efficient measures can be introduced to ensure that the risk of this happening is low, and if it should, it will be discovered sooner rather than later. This takes a different mindset to that of an auditor, that of a fraud expert, such as a forensic accountant or fraud investigator is of course ideal.

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.

A fraud can be uncovered in a number of different ways. A good example is by a whistleblower who who might inform his managers that a colleague has been fraudulently stealing from the company. Such a corporate fraud will need to be investigated in order to prevent further losses, find out how it happened in the first place and to try to recover where possible any losses that have occurred.

A specialist fraud investigator is needed for such a task and it is very common for the victim company to enlist the assistance of a qualified forensic accountant. Such a person will be accredited to investigate a fraud and may be a Chartered Accountant or a Certified Fraud Examiner with possibly other qualifications together with years of experience dealing with such cases.

Every fraud is different. There are different characteristics to be found between bank fraud, supplier fraud and mortgage fraud. Even within these categories there are many possibilities because the fraudster is very resourceful in seeking out new and different weaknesses in a business.

The investigator will approach the corporate fraud by first determining what the organisation wants to achieve. This might be only to get the money back or it might want to make an example of the fraudster as a lesson to others. If it only wants to get its money back it may not want law enforcement involved as this might disrupt its business or cause its reputation to be damaged. For example a bank might not want the general public to know that it had allowed a fraudster to work in its midst.

The forensic accountant or certified fraud examiner will want to agree the desired outcome of the matter with management and develop an investigation strategy based upon the organisation’s own fraud response plan. It may be possible to interview the whistleblower early on to get a quick “heads up” into what was going wrong before beginning a detailed analysis of the accounting records, interviewing staff and making other enquiries often outside the organisation.

For the actual mechanics of the investigation the forensic accountant will most likely want to follow the trail of the stolen money. “Follow the money” will be the primary goal in such a forensic audit as this will provide not only a chance of getting the money back, but also evidence of why and how the fraud took place.