Business fraud advice

Businesses in Yorkshire are in danger of crumbling under the mounting weight of fraud by their own management, one of the regions leading experts has warned.

Business fraud solicitor

Sarah Cleary, a regulation and investigations partner at national law firm Irwin Mitchell, based at its offices in Queen Street, Leeds, gave the warning after evidence suggested Yorkshire businesses lost more than £14 million in 2005 as a result of insider fraud by senior employees.

She said: Despite the guilty verdicts delivered following the high profile downfall of US energy trading giant Enron, businesses in Yorkshire still believe fraud on that scale could not happen here.

In reality the figures are deeply concerning with management perpetrated incidents here in the UK rising. Fraud by lower level staff pales in comparison, accounting for just over £1 million in 2005.

Ms Cleary said: The latest fraud barometer by KPMG shows this form of business crime is at its highest level for over 10 years, making it more important than ever for Yorkshire bosses to avoid falsely believing they are safe.

Recent business fraud case

Recent high profile fraud cases in Yorkshire include businessman Charles Forsyth, who was sentenced to three-and-a-half years imprisonment and disqualified from acting as a company director for 10 years, after admitting fraud at Boroughbridge supply firm Personal Computer Sciences.

Five company directors and managers of Wakefield-based venture capital company Anglo American received sentences, ranging from community service to three years imprisonment, for their involvement in a £5 million investment fraud.

Ms Cleary said: Often insider frauds, such as directors or managers awarding themselves bonuses and excessive perks, are carried out by the most unassuming or trusted person and, as they are usually conducted over a long period, can be easily missed.

There are also the less well known cartel offences of bid rigging and price fixing “ often carried out by those in the business who are not even directors. It is the company and its directors who may end up carrying the financial can and even land up in jail.

Those at the top are allowed to exercise control over a large part of the business or their department, giving them easy access to a company's bank accounts, intellectual property, business information and customer details.

Avoid business fraud

Ms Cleary recommends businesses in Yorkshire introduce some straightforward prevention measures to help protect themselves from fraud:

• Check the identity of employees and companies you plan to work with by taking up references
• Ensure company procedures are followed by everyone, regardless of seniority
• Never hide evidence of financial problems
• Ensure any checks that are built into internal procedures are independent and comprehensive, and where possible, led by an auditor
• Set up a whistle blowing policy to protect employees who suspect malpractice
• Notify your investigative department or external legal advisors as soon as possible if suspicions are raised

Business malpractices are often picked up and investigated by government agencies with prosecuting abilities. Ms Cleary advised businesses to contact their lawyers if raided by an investigating authority, such as the Serious Fraud Office, DTI or Office of Fair Trading, as it is an offence not to co-operate in many instances.

She said: Penalties for fraud or business malpractice can include heavy fines, imprisonment, confiscation of personal assets and disqualification as a director. In the UK we are not at the US end of the penalty scale yet, but sentences are definitely getting stiffer, with many facing jail, even if it is an open prison.

Managers concerned about the implications of rising fraud to their business can contact the Irwin Mitchell regulations and investigations team on 0370 1500 100 or using the drop us a line button above.

Can we help you with business fraud legal advice? If please visit our Fraud and Investigations section.