And, do you know what? It probably doesn't matter greatly. All attempts at quantifying corporate fraud are doomed to failure because they have to be based either on reported fraud or opinion. In its last report, the NFA estimated that hidden fraud represented 70 percent of the total, a reasonable estimate which is unlikely to have changed.
The reasons for non-disclosure are many but the main ones are: reputational harm; creating a magnet for further fraud; the distraction of an enquiry; and the feebleness of the subsequent punishment. Most companies would prefer to swallow the loss and tighten their fraud control procedures. And this is where you come in.
Thanks largely to the internet, you have masses of ways to spot fraudulent activity, without even leaving your desk. You’ll never detect all fraud once it’s under way – cyberfraud springs to mind – but, even with that, you and your work colleagues have the power to nip it in the bud. Many organisations are unaware of how much they can do.
In this article we’ll look at five major corporate fraud types and how you and your colleagues can prevent them happening. Each is designed to steal your company’s money, goods and other assets.
Fraudsters can change the details of a Company’s Directors and Registered Office address at Companies House in order to inherit a credit rating or establish trust. They will change important information such as directors’ names and trading addresses. Companies House simply files this information, unchecked. The fundamental preventative measure is to know your customers and, if you don’t, cross check the details. Google the addresses to see if they reflect the nature of the company you think you’re dealing with. Check the auditors are recognised by their professional bodies. Make sure the registration number is valid. Do a domain name check with whois.com or similar.
The website URL will look very similar to the real thing. You can even check VAT numbers online. Do the signatures on the accounts match, year on year? You’d be surprised how often the signature varies under the same name.
A fake company is usually a limited liability company with details filed at Companies House, with all that implies (see above). The difference is that the company may not exist in any physical form; it is simply a mechanism for getting money or goods out of you without paying. Perform all the checks you would with the Company hijack. Make use of Google Street View. Since an order or an invoice is usually involved, check every last detail. The same goes for the website. Call the phone numbers and see if you get a real employee or a call centre. Examine the accounts – do the numbers ring true? Are they all rounded thousands, for example? Or is the profit excessive – especially in the early years. Follow up trade references – fraudsters often give out ‘big names’, confident that they won’t be double checked.
A common fraud is to send a cheque for too much money. The goods are delivered and a refund put in motion. By the time you get news that the original cheque has bounced, the fraudster has the goods and has probably banked the refund cheque as well. And done a runner, to boot.
Another, which requires some insider connivance, is to prepare a cheque using invisible ink in order to get an authorised signature. The payment details can all be altered at leisure. Both require you to know who you’re dealing with both inside and outside the company.
A virtual office is an office location, and corresponding mailing address, that is shared by many businesses with mail forwarding and telephone receptionist services. They’re often set up remotely over the phone or the internet.
Fraudsters use these to appear legitimate, while remaining physically outside of the jurisdiction in which they are perpetrating their frauds. Money laundering regulations dictate that a suite or a PO Box address are not valid addresses. Either find out the underlying reality or repel their advances.
While the primary victim of this fraud is HMRC, you can be penalised if your company participates. It happens when a company imports small, high value, goods (e.g. mobile phones or computer chips) VAT-free from the EU. It sells on at a cut price and collects VAT, but never pays it to HMRC. After the goods are traded through a succession of ‘buffer’ companies, they are sold back into the EU and the VAT reclaimed from HMRC. The same goods are then re-imported to the UK, hence the term ‘Carousel’.
Your company might be offered an irresistible deal on the very goods that someone else has just enquired about. The companies on either side of you are part of the fraud chain. By succumbing to the deals and not properly checking the credentials of your supplier and customer, you become part of the fraud.
This collection of fraud-spotting techniques is partial but, hopefully, it’s enough to put you on your guard and inspire you to dig a little deeper or seek outside help from business intelligence agencies.
If something looks suspicious, then it probably is. And, even if it doesn’t, it’s worth making sure you know exactly who you’re dealing with.