Fraud Investigation

Investigation of fraud is a complex matter and involves the covert or open capture of data from the suspect which is dependent entirely on the circumstances of instruction. It is important that the chain of evidence is preserved so that it can be used at a later date and it is always better if experts are consulted at an early stage before an investigation commences. The introduction of the Fraud Act 2006 has made the prosecution and capture of data a lot easier because prior to that it relied on the Theft Act 1968 and in particular Section 17 and various breaches of the Companies Act and Common Law Cheat. If a fraud is discovered it is obviously important to manage not only informing the proper authorities investigating the individuals but also the impact on the press, management time and the other staff and the business itself. The investigation of fraud if mismanaged can indeed lead to a loss of profits and business interruption in its own right.


It is even more important in these particular economic times to ensure that there are systems in place to identify the risk of fraud and a risk assessment back-up plan investigation of systems to highlight any weaknesses is essential in the investigation of fraud and its prevention. The consequences of fraud are so severe in certain circumstances that it can lead to closure and the loss of a business. Reported economic crime involves fraudulent behaviour and dishonest intentions and both of these emanate from individual members of staff. It is therefore absolutely essential that staff members and recruitment staff members are properly vetted and the recruitment procedure is rigorous to ascertain prior history and any prior convictions. KLCA can assist with this process by the use of appropriate experts.

Fraud is committed by false representation, a failure to disclose information and an abuse of a position of trust. The definition under the Fraud Act 2006 concerns conduct that is”knowingly dishonest” xxxxx and has the intention of making a gain or causing a loss in money or other property. The loss can be temporary or permanent and can involve the use of property including intellectual property, xxxxx real personal or intangible or things in action like debts. The obvious items in fraud involve the possession of articles for use in the fraud or making and supplying articles for use in fraud knowingly or with the intention to facilitate a fraud.

The records that the Fraud Act 2006 covers includes data or electronic programmes and therefore must include the basic accounting records including credit card bills, bank utilities and letters. It is also possible to carry out a business on a fraudulent basis not only by passing off by using another but trading with the intent to defraud creditors or any other fraudulent purpose and this fraud is committed by persons exercising control or a managing function to carry on that business.

The ramifications of the Insolvency Acts are also appropriate for consideration and KLCA has considerable experience in dealing with the point of insolvency investigations to ascertain whether the directors knew or ought to have known that a business was insolvent and therefore they should not continue to trade. The personal consequences for a Director if trading whilst insolvent are that there are substantial personal liabilities and any loss incurred by a specific creditor after the point of insolvency may have to be funded by the individual director personally.

It is not possible to commit a fraud by omission but only by a deliberate dishonest act with an intention to take services for which payment is avoided or to deceive others in the provision of services or goods. It is possible to become implicated in a fraud by inadvertently or deliberately laundering money, handling stolen goods or assisting another to commit fraud. One useful maxim that anyone involved in record keeping or running a business or company should remember is the “knowledge test”. This is applied to any schedule or document prepared that might be used at any time for a tax return and which contains an incorrect or false statement that its author knew or ought to have known was incorrect or false renders the author liable to criminal sanctions.

Kay Linnell has wide experience with these investigations which she gained whilst at HM Revenue & Customs as the Board of Inland Revenue Chief Investigating and Prosecuting Accountant and also during her time as Head of The Joint Insolvency Monitoring Unit. Areas to avoid according to Kay are making off without payment, retaining a wrongful credit, a conspiracy to defraud and common law cheat. We sincerely hope that you do not need fraud investigation services but if you do please consult us early on and we will endeavour to assist you in managing the damage.


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