Corporate Crime

Posted: 5th Feb

Fraud is an ever-present danger for any limited company. Has an accountant ever reviewed your company’s financial controls and protected you against Corporate Crime?

Twenty years ago, limited companies with a turnover exceeding £350,000 were required to have a statutory audit. This figure has risen over time, with the most recent increase taking it to £10.2m.  As a result, for long-established small businesses, the annual visit from the auditors is now something of a distant memory. Equally, for most more recently established businesses, the statutory audit is not something they have ever considered.

Companies below the audit exemption  threshold

The drop in accountancy fees and the reduction in the amount of time spent preparing documents for accountants has undoubtedly been appreciated by most limited companies which have been exempted, and for many companies, the exemption is wholly appropriate. However, with a statutory audit no longer required, few business owners have stopped to consider one of the by-products of an audit, recommendations on how the company’s financial controls might be improved.

Companies below the exemption threshold may however choose to have an audit, or a more limited scope review akin to an audit, on a voluntary basis.

Combating Fraud

These days, fraud is one of the most commonly committed crimes, and while all of us are hopefully all too aware of the dangers of internet fraudsters and telephone-based scams, it is important to remember that not all frauds are committed by faceless conmen. It is an unfortunate fact that the vast majority of frauds to which companies fall, victim, are either enabled by a well-meaning employee or worse still, perpetrated from inside. Finally, while corporate fraud is often perceived to be a victimless crime, if you are a shareholder, you are the victim of any fraud against the company.

The best line of defence

Strong financial controls are the best form of defence against all types of corporate fraud. These controls are vital as soon as a sole owner-manager starts to delegate any part of the financial management of the company to a business partner or to employees.

Current areas of particular concern are false email scams, including “false chief-exec fraud”, where an email supposedly from the boss requires an urgent payment to a new supplier, who happens to be the fraudster, and fraud committed by a director. We have unfortunately seen examples of both in recent months.

How Harts can help

If you feel your company’s controls would benefit from a review, or you would like advice on how they might be improved, we would welcome the chance to discuss this with you. We are able to undertake both full (including voluntary) statutory audits and more limited scope reviews where the scope is agreed upon between the company and the accountants.

While prevention is always better than cure, through our forensic accountancy practice we may also, in conjunction with solicitors working on the case, be able to assist in cases where fraud is suspected or has occurred.

Alleged director fraud – case study

We were recently approached by the shareholders of a company which had two directors, both of whom had minority stakes in the business. One of the directors (“A”) had sole responsibility for the company’s bank account, including making all payments. He had also been the only individual to see the company bank statements (paper or online) and had prepared the company’s annual accounts in conjunction with the company’s accountants.

During the process of raising new funding from outside investors, it had become apparent to the other director (“B”) and the remaining shareholders that A had for more than three years been using the company bank account as an extension of his private funds. Harts worked alongside B to review the bank statements and summarise the payments made by the company either directly to A or to fund his private expenditure. Net of repayments, our work identified unauthorised payments in excess of £100,000 to A. Our work was then used to support legal action by B and the other shareholders against A.

For further information contact Chris on 01625 669669 or email CBentley@harts-ltd.com