Decisive action can alleviate impact of business fraud

Andrew Foyle, a solicitor advocate and the Head of Litigation for Scotland

Andrew Foyle, a solicitor advocate and the Head of Litigation for Scotland at Shoosmiths LLP outlines why as instances of fraud increase, businesses must act decisively to protect their interests.

IN setting out the guiding principles behind its recommendations to strengthen the financial reporting ecosystem, Accountancy Europe, a Brussels based non profit organisation that represents over one million accountants, auditors and advisers, states that “the most cost-effective way to limit fraud losses is to prevent fraud from occurring”.

That sounds rather straightforward. However, as we have seen from the conviction last month of a book-keeper in Glasgow, whose embezzlement of more than £250,000 led to the collapse of Campbell McWilliams, a management training firm, eliminating fraud from your business is not an easy task.  The Campbell McWilliams case follows the near collapse of another Scottish business that was reported last year, after the embezzlement of over £239,000 by an account manager led to numerous difficulties for the business. These included threats to the business power supply and a financial inability to replace departing staff. 

More high profile examples include the author JK Rowling’s civil case against her former assistant at Airdrie Sheriff Court, for the fraudulent use of her credit card, back in 2019.

Notably, in an economic downturn, fraud becomes more common and sadly, it’s often the most trusted of employees who falls prey to the temptation. So, what can be done?

As Accountancy Europe has stated, prevention is better than cure and in my opinion, it’s worth being cognisant of its recommendations that are a mix of measures to be implemented by businesses and by the accountancy profession. These include adopting a fraud risk management programme; consideration of fraud risks specifically within senior management; and improving auditors’ access to knowledge and awareness of fraud so that they are better placed to recognise signs of it.

Having a strategy to minimise the likelihood of fraud occurring, through the use of risk assessments and internal systems and controls, also makes sense for businesses of any size and can significantly alleviate the impact of fraud.

However, as these steps are unlikely to eliminate fraud in its entirety, it’s vital to also consider what actions a business can undertake after such an event.

In circumstances where the police are involved and there is a public interest in doing so, the Crown will often lead attempts to trace and seize the proceeds of crime.  They have extensive powers in this regard, and are effective in using them.  However, in cases where the Crown has not undertaken such an exercise, it will be up to the employer to pursue matters.

Usually pursuit will be through the civil courts (the aforementioned JK Rowling being the most recent, widely reported, example).  However, successfully obtaining a judgment against a wrongdoer is no guarantee of recovery.  In order to maximise the chances of recovering some or all of the money taken, the best advice is to act as quickly as possible and to make use of all of the weapons within the court practitioner’s arsenal. These include interim orders to freeze bank accounts and to prevent the sale of any property owned by the wrongdoer. 

In my experience, quite often there is little to show for the crime, though in instances where a fraudster owns a house or has money in a bank account, that can be pursued in order to reduce the exposure of the affected business.  Notably, delays by a business in taking action run the risk that those assets will be moved elsewhere or simply dissipated.  At a time when fraud is on the rise, taking swift, early action gives affected business the best opportunity to at least mitigate their losses. In many cases it may prove to be the difference between survival and bankruptcy.

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