Lying in Wait

Manchester Evening News – Friday, 20 June 2003

Lying in wait

Fraudsters will strike at any time, but there are those whose job is to stop them

When Joe Carter’s dreams of one-day taking control of Mike Baldwin’s lingerie business were shattered, he hatched a plot with his girlfriend to defraud his boss of thousands of pounds. The duo began writing cheques to a bogus company they set up. Now the Coronation Street storyline is reaching its climax.

In real life, insurer Norwich Union has initiated legal action against a member of staff in wake of an alleged £1.5m employee fraud, believed to have originated in one of the company’s claims departments.

And, yesterday, the MEN told how a slick conman bought a reputable, family run fruit and vegetable wholesaler in Manchester using a false name, ran up more than £250,000 in bills to suppliers, and then disappeared. He was brought to Justice this week and jailed for five years.

These examples are the tip of the iceberg. Research by accountants KPMG found 55 per cent of companies have experienced fraud of some type, and the number is rising rapidly.

Corporate fraud costs blue chip companies between two and five per cent of turnover every year. Even small-scale office swindles, such as submitting false expense claims, cost businesses £831m a year.

Ultimately, of course, fraud affects everyone. Analysts estimate that the hidden annual cost is £650 per person in higher prices.

One of the biggest growth areas is identity fraud, according to Credit Industry Fraud Avoidance System.

CIFAS is a UK fraud prevention service, which counts banks, mail order, and retail-credit firms among its members.

There were 74,000 reported cases of identity fraud last year, compared with 53,000 in 2001, says CIFAS. The first three months of this year have shown a 12 per cent increase.

CIFAS members have launched a crackdown, beginning with a training programme for thousands of front-line staff.

Identity fraud involves stealing an individual or company’s details without their knowledge, and using the information to buy goods or services.

The MEN has highlighted the plight of several businesses in the north west, which suffered from this type of “corporate hijacking” offence.

Fraudsters write to Companies House to falsely register new addresses and directors of bona fide businesses. The cheats often set up lines of credit in the name of the established company they hijacked-then disappear.

Simply writing a letter asking for a brochure will elicit a response on headed paper –which crooks then use to notify the bank of change of address and to redirect mail. If chequebooks arrive at the new address, the fraudsters clear out the accounts.

Experts agree that prevention is better than cure. Staff training and a tightening of internal procedures help.

And business people should insist on dealing with people in person if they have any suspicions.

Often, it’s the enemy within.

Most fraud suffered by companies is committed on their own doorstep, according to the north west expert Peter Ferguson.

The former policeman runs a company, which investigates allegations of corporate fraud and advises business people on ways to prevent it.

Mr Ferguson, 57, spent 30 years in the Lancashire force, 20 in the fraud squad. After he retired, he set up Corporate Fraud Solutions, in Preston.

His team includes Brian Marsden, a former managing partner at Blackburn accountancy firm PM&M, ex Merseyside policeman Mike Barron, and investigators based around the country.

“Lots of businesses cannot afford their own in-house heads of security. Our job is to investigate suspected offences and help businesses to minimise the risks,” said Mr Ferguson.”

Clients include major PLCs as well as small and medium-sized enterprises all over the UK.

“Eighty per cent of corporate fraud involves an employee. Business have to start tackling it by looking in,” said M Ferguson.

A recent investigation by Corporate Fraud Solutions uncovered a £200,000 scam at an electrical goods retail chain. A gang recruited a dishonest employee in one shop to order goods for home delivery. He fraudulently keyed them in as being paid for in cash, which meant they were automatically despatched from the group’s distribution centre.

“Cash orders were not reconciled with the store’s takings, and the chain lost £200,000 of goods, before an alert driver realised he had delivered goods in different names to the same address and reported his suspicions,” said Mr Ferguson.

The cheating employee and the gang were all subsequently jailed.

In another case, a firm paid well over the odds for a piece of equipment ordered from Germany. The technical director, who had placed the order, had arranged for his firm to pay a third party supplier at an inflated price, for which he received a huge commission.

Mr Ferguson undertook a four-month investigation, which led to court action to freeze the technical director’s assets so his firm could recoup its money.

“Many companies prefer not to prosecute, for fear of attracting adverse publicity-but it can work to their advantage by illustrating they are not prepared to tolerate fraud,” he said. “But some prefer civil claims to get back money they have lost.”