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Investigating Fraud, How Hard Can It Be?

The whole fraud investigation industry must be concerned about the recurring criticism levied upon the Serious Fraud Office. Only recently the Times and others reported the latest trial bungle, with the SFO ordered to pay legal costs of £7 million and criticized by the judge who said “legal analysis by the SFO throughout this case was inadequate”.

The worry is that our nation’s flagship organization for dealing with major and complex fraud is another badly run public body that pays more heed to political correctness than the nuts and bolts of serious business crime and corruption. The police forces may be under similarly close scrutiny by both the regulators and the general public but by and large seem to get the job done.

I have provided forensic accounting services to the SFO, the Metropolitan Police Service and many other regional police force economical crime units, and have been able to make one or two conclusions regarding what is often perceived to be the first line of defence against the fraudster.

The most important observation is that the scale of fraud, money laundering and financial crime is so massive that the public fraud regulators can only hope to chip away at a small proportion. Actual losses to fraud, including all the movements of money that constitute the proceeds of crime is truly unknown, but estimated to be many billions every year in the UK alone. Think of a figure akin to the welfare and benefit budget, or alternatively several per cent of the UK’s gross domestic product, and you may well be on the right track. The point is that the army fighting fraud is mostly made up of public and private sector professionals working outside the police and SFO.

The fact that there is a wealth of fraud experience in the private sector is not lost on the police forces. I was encouraged recently to be asked review a major money laundering prosecution before charges were formally put to the defendant, to ascertain the logic behind the allegations and whether or not the financial evidence actually supported the case. In my experience of dealing with hundreds of different cases I have concluded that people are unpredictable and that many a financial affair can look odd, but be completely legitimate. Sometimes regulators can be too zealous, jumping to conclusions that are unsupported. The simplest example is an individual who owns more than a couple of bank accounts.

Owning multiple bank accounts has always been a red flag for the fraud investigators. And rightly so, spreading transactions can confuse onlookers and hide illegitimate activity. However some people keep accounts for different purposes, they never close dormant or little used accounts and may even feel they are more important and financially astute as a result of owning dozens of accounts that are so easy to set up these days. As a forensic accountant most cases I take on involve many bank accounts, and on first sight matters seem confusing. After a short while the strands of inter account transfers and unconnected activities are identified and the case suddenly seems simple. At this stage, the size of the fraud can be clearly seen and more often than not it is less than originally envisaged by the regulators.

Fraud involves criminal litigation, which necessitates some of the participators to be independent and impartial. We know that the judge and jury must be impartial, but the adversarial nature of UK justice means that both the prosecution and the defence teams are completely the opposite. It would be improper and incorrect to label all the adversaries, including regulators, lawyers (and the defendants themselves) in the same way, as being devious and prepared to lie. However all parties in both sides want to win, and therefore in the same way that defence lawyers will not disclose documents that might incriminate, the prosecution can often be quite reckless in its accusations in the hope that at least some will stick.

An Argument For Joint Criminal Expert Accounting Witness?

I am an independent forensic accountant, which means that I must be able to support my work in court as an non partisan expert witness. Over the years I have come to realize how much strength this gives my work, that can assist the party that instructs me. The logical thought is that such input could be presented jointly, on behalf of both sides in a criminal matter. Some years ago I conducted research on this very matter for my thesis supporting my masters degree in fraud investigation management. The question was whether or not an independent expert could support the court during a complicated fraud trial. I believed it could, and might prevent the collapse of the large fraud trials regularly reported in the press and noted at the beginning of this article. Cases for the prosecution and defence could be reviewed by independent qualified and credible fraud experts, with a report provided to the judge that would cost a fraction of the sums lost when the case dissolves after weeks of lengthy debate. Unfortunately prosecution and defence professionals do not appear to share my conclusion and I will continue to provide my impartial services separately to both.