BDO are a large and well respected accountancy practice in the UK. Like many accountancy practices, they now offer a range of services including fraud investigation and forensic analysis services and for some years they have published data about fraud. Their latest report has some interesting findings, and implications :-

• BDO’s report claims that reported private sector fraud in the UK exceeded £2 billion for the first time in n 2011
• The above represents a massive 50% increase from 2010.
• The retail sector saw the biggest rise in percentage of the reported fraud, up to over 10%

 Increase in fraud doe to be an unfortunate side effect of harder economic realities, although it may also reflect changing societal values, as evidenced by the plundering in the riots, the problem of insurance claim and personal injury fraud, mortgage application fraud and so on. Interestingly, BDO also suggest that the true scale of fraud may be 10 times higher or more, as the majority of businesses either don’t have any or sufficient measures or procedures in place to find fraud or they do not report it. The reasons why they do not report fraud are complex and multifarious and perhaps appropriate for a separate blog post !

For more on the BDO report, click the link.

What do you think of these figures and developments, or about the causes of fraud and whether it has become a bigger problem in our society ? We’d love to have your views.

The House of commons Public accounts Committee have published a report which claims that scams and frauds (is there any difference ?) are taking up to £7 billion annually from the pockets of already stretched consumers in the UK.

Much of this fraud is now apparently being achieved online, where regulation and application of the law is still trying to catch up and there is something of a “goldrush” or “wild west” effect still ongoing. Chip and pin, identity and credit card fraud are also big and overlapping problems according to the report.

There is a double whammy effect in that law enforcement agencies, such as the Office of fair Trading and the Serious Fraud Office, let alone regional police forces, are all having their budgets slashed, which is only likely to result in the problem getting worse. Many would also argue that financial crime is increasing in line with a decline in moral standards where there is a get rich quick or gotta have it culture. The riots and wanton looting in London over the summer were certainly indicative of much of a consumer society gone mad as of a disgruntled population for political reasons.

When we talk about scams and inappropriate tactics which perhaps fall somewhere short of the legal definition of fraud,  as regards defective goods, dodgy doorstep selling tactics and such like this again is a multi billion pound problem. Research suggests that to counter this, last year the Government only allocated  £34 million on consumer protection, with deterrents being low in terms of fines and punishments for bad practice. It looks like we are fighting a losing battle.

What are your thoughts on these issues ? Please do let us know and relating to any instances you have suffered of fraud or scams, but no names please !

Interesting report in The Sunday Times yesterday, relating to the latest boiler room frauds:

Conmen target investors with environmentally friendly schemes.

They create a name at Companies House with a mailbox address.

Genuine Share Certificates are issued relating to that Company in order to own forestry plots. The investments are however bogus, or worthless.

A number of boiler rooms were set up overseas, particularly in Spain.

People interested in ethical investments are targeted via the media, their own websites, and Charitable organisations. A ’sucker list’ is then compiled.

Boiler room staff are employed to make contact with people and organisations from the sucker list by telephone. These people, referred to as ‘fronters’, call and make the initial pitch.

This call is followed by a ‘closer’, who finalises the purchase of shares in a Company.

A final call is then made by a ‘verifier’ who states what rights you have, in order to comfort and re-assure you that what you are purchasing is genuine.

Your money is then sent to an overseas bank, but is typically laundered through a network of various accounts all over the world.

The result is that most investors have lost life-savings and/or their houses.

Those affected by this boiler room fraud included a Judge, Lawyers, Accountants, and other Professionals.

The Financial Services Authority (FSA)  warn people not to deal with Companies that are not registered with them. The FSA also lists unauthorised companies that have been the subject of complaints, ranging from brokers offering shares in suspect energy companies to companies trading in carbon credits.

The FSA recommends that consumers avoid any investments offered by a cold call or unsolicited letter.

The writer is Partner and Head of Litigation at Darlingtons. David Rosen is a working member of the Fraud Advisory Panel, an Associate Member of the Association of Certified Fraud Examiners, and a visiting Associate Professor of Law at Brunel Law School, Brunel University.

I begin with a brief outline as to why people may commit fraud.

According to the criminologist, Donald R Cressey, there are 3 factors that present the appropriate environment for fraud to occur within an organisation:

•  Unsharable financial need: living beyond one’s means, and the desire to maintain an unrealistic lifestyle;
• Rationalisation of fraudulent behaviour (i.e. Thinking that where you work can afford or will not miss what one takes)
• Perceived Opportunity: the opportunity for fraud to present itself, and the likelihood to get away with it.

These concepts can be further analysed by behaviour characteristics, and through various other theories:

In the Fraud Advisory Panel 12th Annual Review 2010, they refer to ‘People Risk’, and the do’s and dont’s of pre-employment screening:

As a non-exhaustive illustration, all employees should be screened as to their financial status (via credit checks), the amount of time they have lived at their Property, the time they spent previously in full-time employment. What you should be looking for is commitment to previous work, relationships, and stability in residence.

One should check for any previous criminal convictions, having regard to the Rehabillitation of Offenders’ Act.

Always take up references and follow up any that do not materialise.

Do their CV’s add up ?

Check for ambiguity in dates and qualifications. Check for changes in the following:

• are there noticeable signs of drugs problems ?
• drinking issues ?
• matrimonial problems ?
• money issues ?
• resentment or unrest in the office ?
• general unhappiness ?
• sudden purchasing of luxury goods ?
• going away on luxury holidays ?

Do you know what to look for?

Do you have checks in place? Are you giving your employees an opportunity to steal from you? Do they think there is an opportunity to do so?

Further articles in anti-fraud will identify various frauds in the workplace, what signs to look for, what checks to have in place, and how to deal with such issues when they arise.

David Rosen is Partner and Head of Litigation at Darlingtons and an expert in commercial fraud. He is also a working member of the Fraud Advisory Panel, and an Associate Member of the Association of Certified Fraud Examiners.

New fraud research from accountancy giants KPMG suggests that fraud has become increasingly prevalent. As a quick guide to KPMG’s research for the year 2010, here are the main findings :-

• Although Government is the biggest target for fraud with over £800 billion losses, the private sector figure, at nearly £270 million is also high and has increased since last year by more than  30%.
• Internal fraud by staff accounted for £225 in the first half of 2011 compared to just over £180 million for the corresponding period in
• KPMG recommends businesses do more to prevent and identify fraud, with practical suggestions including whistle-blowing lines and more regular internal financial audits.

The objective is to rip you off and con you into purchasing something by way of an advance fee for goods or services which do not exist. Those in the proverbial room, effectively run off with your money, and close shop before you can identify who exactly you were dealing with.

The mechanics of such a scheme are usually run through a Boiler Room. A Boiler Room can be any space with communications, and usually involves a number of people.

The way it works is based on your desire for a specific good or service, the lack of supply in the market generally, and the possibility of you having something that others do not have, and making a profit. The main ingredient is the urgency to purchase such goods and services, and the pressure or boiler to buy now whilst stocks last…or that tickets are going quickly and if you do not buy now, you will miss out.

Let me introduce you to some of the players in a boiler room :

There is usually a ‘fronter’ . This person makes the initial telephone call. This person is normally not aware of any fraud scheme. They are given set scripts and take you through a variety of questions to draw you in and to gather information.These people are there to whet your appetite; to discover your needs, and desires in order to sew a proverbial seed of desire, and to leave you hungry/thirsty for the goods or services being offered.

There is then a second call from another person who is a ‘closer’. That person is there to re-assure you that all is well, and to give credibility to the service being sold, and who is selling such a service. They are there to close the deal and take your money.They will also apply pressure in a different way.

Finally, there is a ‘verifier’ . Once more, that person exists to re-assure you that all is well. They ay quote you something from the Financial Services Act, in order to give further credibility to the scheme, and to comfort you in respect of the service being offered.

By the time your money is taken, and no goods or services exist, it is usually too late to do anything about it.

Typical boiler room frauds involve the purchasing of stocks and shares, commodoties, rare stamp collections, rare coins, hard to get tickets for concerts, sports games, the Olympics, music festivals.

It is highly likely that in the build up to the 2012 Olympic Games, that numerous boiler rooms will arise.

What steps to take if you have been conned

Normally little is done by those who have been conned, because they feel foolish to tell people, because the sum taken is not necessarily a large sum, and because they feel that nothing would be done in any event.

According to the Association of Certified Faud Examiners, 1 in every 20 people fall foul of a boiler room fraud, and 1 in every 100 ever both to report such a fraud.

Whatever way you have been conned, or however foolish you feel, always, always, always, report such a crime. Go to your local Police Station and report the crime. Try and remember as much of the details as possible: the voice, the types of questions used, the times of calls, phone numbers if possible.

Also, report the matter to your local Trading Standards Officer. If enough people report such crimes, Trading Standards will launch an investigation. It is part of their duty to protect consumers.

If you used a credit or debit card to purchase such goods or services, and the value was more than £100, the Consumer Credit Act 1976 may apply, and the Bank may well reimburse you for the fraud.

How to avoid a boiler room fraud

If an offer sounds too good to be true, it probably is.

However polite the fronter is, you can also be polite in saying that it is inconvenient to speak at that moment, and that you do not as a policy take unsolicited calls for goods or services.

However desirable the product or service is to you, do not be conned. Simply say no.

If at all tempted, ask numerous questions about the Company, how long it has existed, the Company number, where they trade from, who are the Directors, who are the shareholders, how much business they have done, what stock they have, how they got it. If anything sounds strange, just hang up. It may be an impolite way to deal with it, but you will not be out of pocket.

The writer is Partner and Head of Litigation at Darlingtons, a working member of the Fraud Advisory Panel, and an Associate of the Association of Certified Fraud Examiners. If you believe you have been the victim of a boiler room fraud, get in touch for a confidential assessment. You will need to act fast to maximise any chances of recovery.