Frau Prevention

 

What is Fraud?

 

No precise legal definition of fraud exists; many of the offences referred to as fraud are covered by the Theft Acts in England and Wales, and under Common Law in Scotland.
The term is used to describe such acts as deception, bribery, forgery, extortion, corruption, theft, conspiracy, embezzlement, misappropriation, false representation, concealment of material facts and collusion.
Other offences are created by more sector-specific laws such as those that prohibit corruption or create offences related to companies or financial services, for example.


For practical purposes fraud may be defined as the use of deception with the intention of obtaining an advantage, avoiding an obligation, or causing loss to another party. This most often occurs in the context of a relationship with a customer, client, or colleague on an individual or orgaisational basis.


There are four basic ingredients which are necessary for a fraud to occur:

-  People to carry out the fraud
-  Assets to acquire
-  Intent to commit the fraud
-  Opportunity


While some people would never contemplate perpetrating a fraud, others might do so if they think they can get away with it.
Fraudsters are usually alert, plausible and calculating. You can deter a fraudster who might want to take advantage of you personally, or your business, by being alert to the possibilities. Alertness and effective controls will increase the chances of being caught and will thus act as a deterrent.


In business some frauds arise because of a system weakness, such as a lack of proper control over placing of purchase orders. Other frauds are the result of failures to follow proper control procedures. It may be carelessness in carrying out a check.
It may be that too much trust has been placed in one individual with no effective separation of duties. Frauds which result from collusion may be more difficult to prevent. A computer can be instrumental in the perpetration of the fraud because of the absence of human review of transactions. The lack of human involvement may allow transactions to be processed which would have been queried in a manual system.


An organisation can therefore be exposed to the risk of fraud in a number of different ways. For the purpose of this guide we can divide fraud into three categories:


Internal fraud:

This is fraud perpetrated by individuals inside the organisation and is most often carried out by staff who have access to liquid or moveable assets, such as cash or stocks. It is likely that the risk of fraud and its scale will increase if the member of staff is able to conceal the irregularities by also having access to accounting records. It may be opportunistic, though it may also be planned and committed over a long period.


External fraud:

This is fraud which is perpetrated by individuals outside the organisation and covers activities such as theft, deception and computer hacking. It is very often committed as a result of inadequate safeguards.


Collusion:

This type of fraud involves two or more parties, either both internal, or internal and external, working together. This type of fraud can be difficult to detect as controls may at first appear to be working satisfactorily.


The pages that follow illustrate real cases and identify topical scams. Advice, based on this experience suggests ways of preventing fraud happening to you. satisfactorily.

The pages that follow illustrate real cases and identify topical scams. Advice, based on this experience suggests ways of preventing fraud happening to you.


WHO IS AFFECTED BY FRAUD?

Fraud affects everyone. It costs business millions of pounds each year, though the numbers of cases and scale of those losses are difficult to calculate. Police fraud squads have an ongoing caseload of about 1000 cases each year and a survey in September 2000 established that these cases alone represent at least £1,700 million in losses. These are just the more serious commercial fraud cases and the figure does not include fraud cases dealt with by the rest of the police service.


The obvious effects of fraud include:

-   Insolvency, winding up
-   Bankruptcy
-   Failure of suppliers' businesses
-   Loss of employment
-   Damage to profitable businesses


Fraud dealt with by government departments, especially tax fraud, cases dealt with by the Serious Fraud Office, Social Security fraud and fraud in the NHS, costs several billions each year. In addition, an unknown proportion of fraud remains unreported to the authorities.


There are also many hidden costs as a result of fraud, such as:

-   Loss of working time
-   Loss of business confidence
-   Loss to the Revenue
-   Increased insurance premiums
-   Reduced staff morale
-   Opportunity costs: employees' time
-   The costs of investigation and prosecutions


Fraud clearly doesn't just affect everyone, it hurts most of them, too. Unchecked, fraud has the potential to lead to dire personal financial consequences and, in extreme cases, even bankruptcy. Don't let it happen to you. In these pages the police have drawn on their experience and have prepared detailed advice on a range of technical issues.


In essence, this advice is simple: Prevention is better than cure.


TYPES OF FRAUD

Frauds can be categorised by the type of victim involved. The most common groups of victims encountered by investigators include:

-   Investors
-   Creditors
-   Businesses
-   Banks or other financial institutions
-   Central or local government
-   Fraud by manipulating financial markets

Frauds can also be categorised by the technique or activity used by the fraudster. These include:

-   Advance fee frauds
-   Bogus invoices
-   Computer hacking of information or property
-   Corruption and bribery
-   Counterfeiting, forgery, or copyright abuse
-   Credit Card fraud
-   False Accounting - manipulation of accounts and accounting records
-   Fraudulent bankruptcy - exploitation of cross-border corporate structures
-   Insurance fraud
-   Internet online scams - auctions, credit card purchases, investment scams
-   Investment fraud
-   Long Firm fraud
-   Misappropriation of assets
-   Money laundering
-   Mortgage Fraud
-   Payroll fraud
-   Principal agents - failure of systems to restrict key individuals
-   Pyramid schemes
-   Unsolicited letter frauds.


FRAUD ALERTS

The following fraud alerts are in effect at this time. Click the links on the left for details:

-   DTI urges public to "Rip up postal rip-offs"
-   Russian Roulette
-  Too cheap to be true
-   Canadian Lottery alert
-   1934 Morgenthau Treasury Bond alert, issued by the City of London Police.
-   High yield investment scheme alert, issued by the Metropolitan Police.


Sponsored publication fraud alert, issued by Greater Manchester Police.


FRAUD PREVENTION AND THE INDIVIDUAL

Avoiding investment fraud

Whilst most people are aware of the notorious large-scale commercial frauds that have been uncovered, it is not commonly realised that private individuals are the direct victims of a large and increasing number of confidence tricks, deceptions and other fraudulent schemes.


Such frauds are rarely featured in newspapers or on television because they may seem insignificant, but the impact on the people concerned is extremely serious. It is quite possible, for example, to lose more money as a result of fraud than any other crime - and not just money - your pension, your life savings, even your home can all be at risk.


A fraudster is not easy to recognise. He (or she) could be the polite salesman who calls at your house; or that friendly-looking bloke in the pub who is willing to let you in on a sure-fire thing. He may be someone you know well and would not dream of thinking of as a criminal. Essentially the fraudster aims to convince you that giving your money to him is perfectly reasonable - whether it is for an investment, a purchase, a business proposition, or anything else.


Whilst there are many fraud schemes, their common characteristics tend to be that they promise a large amount of future wealth and depend for their success on your trust of the fraudster. It is this abuse of your trust that allows frauds to occur.


Cold Calling

Generally cold-calling for investment business is prohibited by law, so be wary of apparently generous offers which "turn up out of the blue".


Unusually high returns

Beware of schemes which offer unusually high rates of return when compared to, for example, the interest rates available from Building Societies. Generous offers may be just a means of arousing your interest in a dubious scheme.


Take your time

Never make a major financial decision or sign anything on the spot. Always take your time to consider what you are doing.


Get independent advice

Investment businesses are required to be authorised by the Financial Services Authority (FSA) to carry out investment business.
As a general rule, don't get involved with an unregistered organisation. The FSA maintains a register of authorised businesses which can be easily checked.


Cash transactions

Be wary of individuals who insist on dealing in cash. The use of cash may indicate that proper accounts are not being kept. Be particularly careful about paying cash in advance.


Spread the risk

Do not "put all your eggs in one basket". For example, never commit all your life savings to a single investment scheme.


Overseas Organisations

Be cautious about investing in an organisation based outside the jurisdiction of the British Courts. In the event of difficulty it may be practically impossible to seek a legal remedy.


Avoid an obviously "dodgy" deal

Some fraudsters try to raise your enthusiasm by bringing you in on a scheme to avoid paying tax, or even to help them remove assets illegally acquired in another country. Remember that you are only being offered this "opportunity" so they can test your gullibility before you are set up as the victim of the fraud.


Finally,

Remember that if an investment opportunity seems too good to be true - it probably is!



FRAUD RELATED LINKS

The following web sites contain information about fraud-related issues:

-   UK Police Forces (including fraud squads)
A comprehensive guide to contacting all UK police forces and other police-related organisations

-  The Alliance Against Counterfeiting and Piracy
The Alliance's members represent over 500 of the UK's best known brands and creative businesses, with a combined turnover of £500 billion. The objective of the Alliance is to raise public and political awareness of copyright and trade mark issues so that intellectual property is highly valued by everyone from consumers to manufacturers, and to ensure as a result that copyright theft is treated as seriously as other theft.

-  The Association of British Insurers (ABI)
The ABI represents members' interests in the insurance industry and hosts a collection of fraud pages at www.fraud.org.uk

-  The Association of Payment Card Services (APACS)
The Association for Payment Clearing Services is a non-statutory Association of major banks and building societies and is an umbrella body at the heart of the UK payments industry. APACS provides the forum for banks and building societies to discuss non-competitive issues relating to money transmission.

-   The Association of Certified Fraud Examiners
This is a 25,000-member professional organization with offices in North America and Europe dedicated to fighting fraud and white-collar crime.

-   The British Bankers' Association
The BBA runs the Fraud Intelligence Unit and the Money Laundering Advisory Group for the UK banking industry

-  The British Chambers of Commerce
The British Chambers of Commerce are a national network of local, accredited, independent, non-profit making and non party-political Chambers, funded by membership subscriptions.

-  The Business Crime Centre
The Business Crime Centre is an initiative of the Thames Valley Police. This web site offers free advice on reducing business crime, including an interactive retail park.

-  The Cambridge International Symposium on Economic Crime
This long-running symposium is held at Jesus College, Cambridge in September each year. Supported by many academics and counter-fraud professionals, it deals with a range of topics including fraud, corruption and money laundering.

-   The Caribbean Financial Action Task Force
The Caribbean Financial Action Task Force (CFATF) is an organisation of states of the Caribbean basin which have agreed to implement common counter-measures to address the problem of criminal money laundering.

-   Card Watch
A site providing information for card holders, the media, retailers and the police about plastic card fraud and its prevention.

-  CIFAS - The UK Fraud Prevention Service
CIFAS allows member organisations to exchange details of applications for products or services which are believed to be fraudulent.

-  Compliance Online
The UK's retail life & pensions compliance portal. This site has a lot of useful information for people wanting to make complaints.

-   The Confederation of British Industry
The CBI's objective is to help create and sustain the conditions in which business in the UK can compete and prosper.

-  Crime Reduction
The No.1 on-line resource for the crime reduction practitioner.

-  The Crown Prosecution Service (CPS)
The CPS is the Government Department which prosecutes people in England and Wales who have been charged by the police with a criminal offence, including fraud-related offences. The CPS works closely with the police but is independent of them.

-  The Department of Social Security
The Benefit Fraud Inspectorate is part of the Department of Social Security (DSS), whose task is to maximise counter- fraud performance and minimise the risk of fraud throughout the social security system.

-  The Department of Trade and Industry The DTI's Companies Investigation Branch protects investors, suppliers and consumers from misconduct or unscrupulous practices. The branch has powers of investigation where such practices are suspected; and depending on what is found in an investigation, the Secretary of State can prosecute offenders or take other action where necessary. See also the DTI Guide to UK HEI Research pertinent to Fraud Control, Security and Privacy of Information Systems.

-  The European Anti-Fraud Office
-  OLAF, the European Commission's anti-fraud office.

-  The Financial Services Authority
General information about finacial services is available from the Financial Services Authority (FSA). The FSA is an independent watchdog set up by the government to regulate financial services and protect investors' rights. It provides free and independent information about financial matters on its website.

-  The Forensic Science Service
The FSS is the market leader in the supply of forensic science services to police forces in England and Wales, as well as being a source of training, consultancy, and scientific support for many overseas and private sector customers, including law enforcement agencies in 60 countries worldwide.

-  The Fraud Advisory Panel
The Fraud Advisory Panel was established by The Institute of Chartered Accountants in England and Wales and acts as a focal point for the generation and exchange of ideas and information on the nature and scope of fraud and how to detect and prevent it. The Panel is chaired by George Staple QC and its members are drawn from the legal and accountancy professions, industry and commerce, the academic world, the police and a range of governmental and quasi-governmental bodies.

-  Freedom to Care
A voluntary UK network of whistleblowers, conscientious employees and their supporters, which gives personal support for those in d ifficulty for raising a social concern.

-  HM Customs and Excise
HM Customs & Excise is a Treasury agency responsible for the investigation and prosecution of VAT fraud and other duty evasion. This site includes information on role of the National Investigation Service which investigates fraud and drug trafficking.

-  HM Treasury
This page provides links to all Treasury Fraud reports since 1996.

-  The Home Office - Crime Prevention
Several pages dedicated to crime reduction and crime prevention issues.
See also Juries In Serious Fraud Trials - a Home Office Consultation Document which considers the method of trial for cases of serious and complex fraud.

-  ICC Commercial Crime Services
The CCS is dedicated to the prevention of fraud in commerce, banking, international trade, transport, and to assist law enforcement.

-  The Independent Banking Advisory Service (IBAS)
The IBAS is an organisation for helping people in disputes with British banks.

-   The Insolvency Practitioners Association (IPA)
The IPA aims to promote a better understanding of insolvency administration. The Association regulates and monitors its members' practices and works to maintain and improve the conduct and standards of performance of insolvency practitioners and their staff.

-  The Insolvency Service
The Insolvency Service is an Executive Agency of the Department of Trade & Industry which administers and investigates the affairs of bankrupts and companies in compulsory liquidation and has a duty to establish the reasons for the insolvency and to report misconduct. Has responsibility in England & Wales and some limited insolvency matters in Scotland

-  The Institute of Chartered Accountants
The Institute of Chartered Accountants in England and Wales is the largest professional accountancy body in Europe, with over 120,000 members.

-  The Institute of Public Finance
This site includes the CIPFA Better Governance & Counter Fraud Forum. As a wholly owned subsidiary of the the funds generated by IPF activities are channelled back into services to public bodies. IPF provides a comprehensive range of services which are utilised by over 1,500 public service bodies including most local authorities, central government departments, health service trusts and agencies.

-  The Institute of Risk Management
The Institute promotes excellence in the practice of risk management. Members in the UK and world-wide actively participate in a profession which deals with the risks faced by organisations and their approach to mitigating, controlling and harnessing those risks.

-  International Compliance Association
The ICA is a non-profit making professional organisation dedicated to the furtherance of best compliance and anti- money laundering practice in the financial services sector.

-  The Law Society
The Law Society is the professional body for solicitors in England and Wales. Complaints about solicitors are dealt with by the Office for the Supervision of Solicitors.

-  The Law Society of Scotland
The Law Society of Scotland is the governing body for Scottish solicitors.

-  The Local Authority Investigation Officers' Group
The LAIOG represents the "voice" of investigators at all levels of local and central government. It provides a means of effective communication between the frontline investigators of local authorities through regular national and regional meetings, and a closed user website.

-  The London Stock Exchange
The Stock Exchange is responsible for listings of stocks and shares, monitors member firms' compliance with market rules, and looks at possible cases of insider dealing.

-  The London Team Against Fraud (LTAF)
The LTAF is a non-profit organisation which does not investigate fraud but does collate information and assists in sharing information via a multi-agency network.

-  Mutual Reference
This service is based on one previously provided by the London Stock Exchange, the Stock Exchange Mutual Reference Society (SMRS). It is designed as a reference point for authorised securities firms to check against when taking on a new client and is a very effective tool in the prevention of bad debt, fraud and money laundering. It is not a credit reference service.

-  The National Anti-Fraud Network
With a membership of more than 230 local authorities in England and Wales, the NAFN deals with all types of local authority fraud, including Housing Benefits, Student Awards, Trading Standards, grant applications, false invoicing and internal investigations. Since its formation, NAFN has helped member councils identify numerous frauds which have resulted in considerable savings to the taxpayer.

-  The National Criminal Intelligence Service
The NCIS Economic Crime Unit is the central reporting point for money laundering disclosures.

The NHS counter fraud strategy is a key part of the National Health Serviceand this explains the plan to tackle the problem of fraud in the NHS

-  The Office of Fair Trading
The OFT is not an investigatory body but it is interested in receiving information regarding the conduct of companies and individuals holding consumer credit licences. The OFT publishes a range of leaflets for consumers, advisors, businesses and professionals. Copies of these leaflets can be ordered from these pages. Plus a guide to the law on mergers, restrictive trade pr actices consumer credit licensing and related matters

-  The Office of the of the Information Commissioner
From 30 January 2001 the Office of the Data Protection Commissioner is known as the Office of the Information Commissioner. It continues to enforce the Data Protection Act 1998, and is now also responsible for Freedom of Information. This site contains a guide to the law and procedures on data protection issues.

-  Occupational Pensions Regulatory Authority (OPRA)
OPRA is responsible for ensuring that occupational pension schemes are safe and well run. OPRA investigates and takes action where there is carelessness or negligence that could put occupational pension schemes at risk.

-   Public Concern at Work
Public Concern at Work is the UK's leading authority on public interest whistleblowing. Its charitable objectives are to promote compliance with the law and good practice in organisations across all sectors.
-  Rip-off Tip-off
ripofftipoff.net was developed by Trading Standards and the DTI. It is designed to let the public report rogue traders. They want to hear about cowboy builders, rogue doorstep traders and car dealers, counterfeiters and loan sharks. It contains useful descriptions of "typical cons".

-  Scottish Law Online
Scottish Law Online is a collection of legal websites designed to assist all those with an interest in Scots Law, Scottish Law and Law in Scotland, aimed at law firms in Scotland, students, academics and the public. The site also contains a vast number of links to resources in England, the UK, Europe, US and other jurisdictions around the world.

-  The Serious Fraud Office
TheSFO is an independent government department responsible for the investigation and prosecution of serious or complex fraud.

-   Telemarketing and Investment Fraud
Crimes-of-persuasion.com deals with telemarketing fraud, investment schemes and consumer scams. The site also has a direct search database of over two hundred other sources of relevant and reviewed fraud information for more extensive research.

-  Trading Standards
Local Authorities employ Trading Standards Officers who are responsible for the enforcement of consumer protection legislation and the investigation of complaints about goods and services. This site provides a guide to government policy, civil law issues relating to the sale and supply of goods and services, and professional standards.

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