Fraud investigations

Electronic evidence plays a crucial role in corporate crime investigation. The proper handling of such evidence can be the key factor in stopping a fraud and recovering losses.

Computer evidence is volatile, so it’s essential that it’s handled correctly from the outset. The temptation for local IT/HR staff to ‘have a look’ is likely to overwrite data showing who last accessed the document and substantially weaken the evidence. Experienced computer forensic experts can ensure the integrity of the data and their specialist analysis tools can recover information that appeared lost or deleted.

Case study

Forensic Control worked on behalf of a London NHS Trust. The Trust was concerned that a doctor was running a private practice using NHS resources. This was a sensitive issue and we had to work covertly to take a forensic image of his laptop so as not to raise suspicion or alarm other staff. We extracted dozens of emails showing that the subject had made private appointments over the previous year at times that he should have been working for the NHS Trust. This evidence formed a key part of a tribunal hearing that awarded the Trust damages.

To find out how Forensic Control can assist you in this area call 020 7193 3324.

What is fraud?

Fraud is a type of criminal activity, defined as: ‘abuse of position, or false representation, or prejudicing someone’s rights for personal gain’. Put simply, fraud is an act of deception intended for personal gain or to cause a loss to another party.

The general criminal offence of fraud can include:

  • deception whereby someone knowingly makes false representation
  • or they fail to disclose information
  • or they abuse a position.

Is it fraud? Ways to recognise fraud

Sometimes the way people behave might suggest that they are committing a fraud. Although these ‘red flags’ by themselves they may not be any cause for concern, a few of these together might be enough to alert you that something isn’t quite right.

Key indicators of fraud include:

  • Significant changes in behaviour that you’ve noticed
  • They have large personal debts or financial losses, and a desire for personal gain
  • Audit findings deemed to be errors or irregularities
  • Transactions taking place that were at an odd time, odd frequency, unusual amount or to odd recipients
  • Internal controls that are not enforced, or often compromised by higher authorities
  • Discrepancies in accounting records and unexplained items on reconciliations
  • Missing documents, or only photocopied documents available
  • Inconsistent, vague or implausible responses arising from inquiries
  • Unusual discrepancies between the client’s records and confirmation replies
  • Missing inventory or physical assets
  • Excessive voids or credits
  • Common names or addresses of payees or customers
  • Alterations on documents (back-dating, for example)
  • Duplications (duplicate payments, for example)
  • Collusion among employees, where there is little or no supervision
  • One employee has control of a process from start to finish with no segregation of duties

Types of Fraud

Corporate Fraud

Corporate Fraud involves deliberate dishonesty to deceive the public, investors or lending companies, usually resulting in financial gain to the criminals or organisation. Corporate fraud may include asset stripping, fraudulent trading, share ramping, and the publishing of false information.

Asset stripping

Asset stripping is taking company funds or assets of value while leaving behind the debts. Company directors transfer only the assets of one company to another and not the liabilities. The result is a dormant company with large liabilities that cannot be met and it has to be put into liquidation
Stripping of company assets is normally done for two main reasons:

  • The fraudsters deliberately target a company or companies to take ownership, move the assets and then put the stripped entity into liquidation
  • “Phoenixing” – directors move assets from one limited company to another to ‘secure’ the benefits of their business and avoid the liabilities. Most or all the directors will usually be the same in both companies. This usually arises as a way of ‘rescuing’ the assets of a failing business rather than targeting a company

Fradulent trading

Fraudulent trading is where a company carries on a business with the intention of defrauding creditors or for any fraudulent purposes. This applies whether the company is trading, has ceased trading or is in the process of being wound up. If you suspect fraudulent trading, you should:

  • Alert the liquidator if applicable
  • The police
  • The Special Compliance Office of HMRC.

Share ramping

Share ramping (also known as ‘pump and dump’ and ‘book ramping’) is where criminals influence the share price of a company and then take advantage of it.

  • It is commonly done by bringing a company to the market with false expectations of its profitability.
  • Alternatively it can be done by buying shares in a company when they are at a low price and then starting a rumour that the company is being taken over. When the share price rises, the shares are sold at a profit.

Publishing false information

Publishing false information is a type of fraud committed when a criminal creates, destroys, conceals, or falsifies an account, record or report which is deliberately misleading on the company’s financial position. This is usually done to mislead investors and creditors and to keep a failing company trading.

Public Sector Fraud

Public Sector fraud is where criminals seek to exploit Government grant and compensation schemes for their personal gain. This type of fraud affects all taxpayers by stealing public money. The criminals will produce fake documents and applications to deliberately deceive and exploit certain schemes which are in place to provide help to genuine applicants. Examples of Public Sector fraud include:

  • abuse of the right-to-buy system for former council homes
  • Legal aid fraud
  • Grant for Business Investment (GBI) fraud

Investment fraud

Investment frauds target individuals with convincing arguments to make them part with their savings. These types of fraudsters usually want you to invest your money in a company or opportunity which seems to be offering very high rates of return.

Share scams (boiler room fraud)

A boiler room is an operation selling shares to investors in companies which are usually a fake or are not successfully trading.

  • Scammers typically cold-call people and use hard-sell tactics to sell shares in UK or overseas based companies that prove to be worthless.
  • Boiler rooms are usually operated from overseas locations.
  • The scammers profit by either just taking investors’ money without providing shares or selling the shares to them at highly inflated prices.

Recovery Room Fraud

Often those that run boiler rooms will share their contact lists with others. Therefore if you have given your information to one company you may well receive calls from other companies suggesting they can assist to sell your shares or offering further purchases. What are the warning signs?

  • Have you been contacted about investing in shares?
  • Have you never heard of the company before?
  • Were you promised high rates of return?

Other investment fraud

Investment Frauds could include you offered the chance to invest in a new company or an exciting investment opportunity. The fraudsters will often show a series of professional-looking documents to back up their claims and entice investors. One of the most common investment frauds are ‘Ponzi’ or pyramid scheme will typically involve an investment offer which promises to provide a higher rate of return than usually offered. For example, a 30% return on investment is claimed when a more realistic return is 5-10%.

Bribery and corruption

Corruption is where the integrity of a person, Government, or company is manipulated and compromised for their own personal gain. There are two main types of corruption:

  • Political corruption – dysfunction of a political system or institution in which government officials, political officials or employees seek illegitimate personal gain through actions such as bribery, extortion, cronyism, patronage and embezzlement
  • Corporate corruption – e.g. where bribes are offered to agencies/institutions/individuals in order to win a contract

Other frauds include:

  • Tax and excise fraud
  • Identity fraud
  • Benefit fraud
  • Civil matters (negligence, for example)
  • Contractual dispute
  • Advance fee frauds

Some of the information from this page is from the Serious Fraud Office website and is used under the terms of the Open Government License.

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