Computer Investigation
Fingerprinting
Tracing People
Absenteeism
Employment Tribunal
Moonlighting Employees
False Compensation
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Living with Fraud
By Nigel Parsons, Investigator with Answers Investigation
"Fraud and deceit abound in these days more than in former times" - Sir Edward Coke, 1602
While these words were written in Elizabethan days, they have an equal relevance 400 years later. In a two year period, one-third of companies in the United Kingdom suffered (but did not report) fraud, 30% reported frauds of a sum greater than their average employee salary, and over 60% believed fraud to be more commonplace in the last five years
In its simplest form, corporate fraud may be defined as either the removal of funds or assets from the business; or as misrepresentation of the financial position of the business. Two key elements are deception (or concealment), and deprival (or loss) to the victim. Deception is key to any fraud
Of course, many organisations do initiate programmes to monitor employee activity or to prevent more apparent fraudulent activity amongst their staff, for example irregular till checks, or CCTV security. Internal fraudsters, however, often have a significant advantage in knowing the workings of the business through their position in the firm's hierachy. They are in a position to take advantage of temporary weaknesses, or unnatural gaps between the strength of control systems and the effectiveness of such controls
When asked to examine fraud (or it's potential) within the structure of a business, a professional Corporate Detective Agency such as ours may well start with the company's accounting base, looking at Sales, Purchases, Inventory, Cash systems, Payment systems, Payroll, Company Car schemes etc, with close examination of both customers and suppliers. The use of computers in a company's operation may well increase risk rather than lessen it
It is quite feasible for the Management of a business to conduct a self-assessment, or a "fraud audit", providing they can maintain objectivity. Before trying to unearth evidence of fraud that may or may not be there, it is helpful to consider the company's management style and how it effects the organisation's personnel, culture, structure and business risk
When examining personnel, consider issues such as whether an individual has an autocratic management style; whether there is a mismatch between personality and status (this may not be as obvious as the instance of a £30,000 p.a. employee taking expensive holidays and driving a £30,000 car !); whether an individual (or group) may develop unusual behaviour, or there is an incidence of unusual events (such as the development of a "canteen friendship" between known enemies). Untaken holiday may indicate fear of discovery whilst the culprit is absent, whilst a high staff turnover may suggest disquiet at fraudulent activity within the workplace - as may a general low morale
The Company culture may, in itself, be a breeding ground for fraud. An ethos of results at any cost may cause poor commitment to control, perhaps reflected in employee attitude to an annual audit. Organisations with no code of business ethics leave themselves exposed to inducement through, eg., entertainments and gifts, which may be provided with an implied obligation
The very structure of a company may create weaknesses. Organisations with a central office and diverse depots may not be able to exercise sufficient supervisory control over remote locations, allowing localised fraud within the satellite's internal system. Complex structures may not be able to prevent the establishment of a parallel organisation that takes the cream of the company's business and profit, or supplies at a rate that is favourable to it's operators - who may, unknown to the victim firm, be it's trusted employees
Fraud, of course, extends beyond internal deception. When accquiring a company, whether it is a competitor or in a different industry, many problems may be inherited. Warning signs in target accquisitions are profits in excess of company norms (creative accounting may make the target appear more attractive than it already is), whilst a poor reputation may indicate fraudulent practices within the business. Whilst some industries have a worse reputation than others, there is often an inclination by the Board or proprietors of a target accquisition to paint a better picture than the one a forensic accountant may reveal, particularly if liquidity problems are exposed. A recent Barclays Bank report suggests that 20% of building firms leave the industry each year
So what are the attributes of a fraudster? Nearly every storybook detective since Sherlock Holmes has focussed on motive - whether derived from greed, financial problems, revenge or even sheer boredom - yet motive in itself will not necessarily perpetrate a fraud; the fraudster also needs opportunity. It is where motive and opportunity co-exist that fraud will occur. Fraudsters use many techniques, the common aim being to conceal fraud through deception. Whilst there are too many methods to examine in a single article, it may be helpful to focus on behavioural issues, considering how an individual may respond to questions, bearing in mind that it is easier to conceal than to falsify, and easier to say nothing in response (assuming the right questions are asked) than to maintain a story
Manufacturing and services industries are particularly susceptible, therefore careful examination of both the sales and purchases cycles should be made. Fictitious sales and kickbacks may have started when commerce began, yet they remain among the most common incidences of substantial fraud. No doubt a dishonest Elizabethan Sales Manager prompted similar thoughts in the mind of Sir Edward Coke all those centuries ago
Answers Investigation are Corporate Investigators of 25 years standing in London and across Europe
The author of this article, Nigel Parsons, is an accomplished Fraud and Corporate Investigator with Answers Investigation
