Mark Jenner & Co Limited – Forensic Accounting Services

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 if you are capable enough to run a business in the future, but there are some simple steps you can take yourself to avoid scams. 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 Internet of course, but also look for solid and respectable hard copy publications you can pour through. Have one on your bedside with a pack of “Postit” notes 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, start to jot some numbers down. You don’t 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 marginal 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 manage hundreds of subcontracted Search Engine Operators, writers, other staff and undertake masses of administrative chores each day – yes like any other business it is not a “get rich quick scheme”. Can you learn about a complex subject and then have you the patience to build it up from scratch? – If you can say yes to both, then you can indeed make money online.

As a fraud investigator I see a lot of business opportunities that are clearly frauds and some that simply need a lot more hard graft than the promoter would have you believe.

A fraud can be uncovered in a number of different ways. A good example is by a whistle blower 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 the stolen assets. Other frauds come to light when business owners review results at the end of an accounting period and discover that something is amiss. Frequently a fraud will only come to light when a company enters insolvency proceedings and is subjected to the scrutiny of the Insolvency Practitioner. Sometimes it might be the fraud that has caused the company to fail.

A specialist fraud investigator is needed when financial anomalies are discovered and it is very common for the victim company to enlist the assistance of a qualified forensic accountant experienced in fraud investigation. 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 many years of experience dealing with such fraud 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. Therefore, one of then most important attributes a good fraud investigator can have is a flexible approach, an inquiring mind and a tenacious approach to the work he specialises in.

Rather than jumping feet first into an investigation the fraud investigator will approach the corporate fraud by first determining what the victim organisation wants to achieve. The last thing a publicly quoted company will want is adverse publicity as this might affect its share price badly. Therefore, there may be constraints on the scope of any investigation and the victim might be prepared to accept a lesser solution to its problem rather than receive the publicity.

Normally the priority will be to get the money back or the victim company 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. A police fraud investigation might disrupt the business or cause its reputation to be damaged and there is no guarantee that the business will achieve any of its own priorities. For example a bank might want to sack the employee and stem the leak of losses, and 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 (a member of the Association of Certified Fraud Examiners) will want to agree the desired outcome of the matter with management and develop a fraud investigation strategy based upon the organisation’s own fraud response plan. It may be possible to interview the whistle blower 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 expensive enquiries often outside the organisation. In some circumstances it may be necessary to carry out a preliminary covert fraud review, in the evening or during the weekend when employees are not present.

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.

The losses need to be quantified exactly, with evidence showing how they occurred. In a fraud, this evidence is crucial as the complexity of financial transactions can obscure what has happened and cause the matter to become protracted. If the victim is unable to demonstrate the loss clearly, the perpetrator is more likely to escape punishment or having to return what he has stolen. Any forensic accountant’s report must be able to distill the facts and demonstrate the problem in a simple and coherent way.

This is because the expert accounting evidence must be presented clearly, for use in negotiations, arbitration or otherwise used in litigation. It may also assist in any criminal action that might take place, either alongside the civil fraud investigation or in response to a report submitted after the forensic fraud investigation. Sometimes, the police will not investigate a matter unless there is a clear presentation of the situation such as normally produced during a forensic examination of the accounting records following a fraud.