‘Long-firm’ scams blight practices

Concerns that Companies House has become something of a honey pot for fraudsters intent on using its vast volumes of company data for a variety of fraudulent activities, has hit a nerve with accountants across the UK.

Accountancy Age has been inundated with calls from outraged and worried accountants, all of whom have been the victims of scams where their names were erroneously used to legitimise bogus company accounts.

Jonathan Ford, a director with Jonathan Ford & Co, whose firm has been targeted by fraudsters in the past, says he is concerned that nothing seems to have been done to clamp down on the practice.

‘The worrying thing is that there doesn’t seem to be any reason why it should stop,’ says Ford. ‘There are no safeguards to stop this happening time and time again.’

On top of this, he was ‘amazed’ at the length of time the process took to sort out. ‘The whole episode was very time consuming. I spoke to the institute and wrote to Companies House, which said I would have to take out a court order to have the accounts taken off the public record,’ he says.

He also reported the affair to the police, who, he says, were not particularly interested, and the National Criminal Intelligence Service, who told him that it was not their concern.

Despite this lack of formal interest from NCIS, a spokeswoman told Accountancy Age that upon finding out such a scam has occured, accountants would be ‘obliged’ to report it.

Paul Reynolds of Companies House says this is the first time the problem has come across his desk, but has pledged to pursue the matter. ‘I will have to talk to the people who develop the filing systems. This is something I will certainly take up here. The reduction of fraud is in our interests,’ says Reynolds.

Practices the length of Britain have been targeted by fraudsters and drawn into scams, which are usually devised with the intention of winning vast amounts of credit.

The fraud in question is a variation on the well-known ‘long-firm fraud’ where a fraudster sets up a business as a wholesaler and places orders with suppliers with the intention of evading payment.

A Metropolitan Police statement says the victims of such practices tend to be ‘mid-tier businesses rather than multinationals’ and that the suspects are extremely well organised with a knowledge of companies. ‘A far more sophisticated approach will involve supporting documentation and references from accountants and solicitors to facilitate the fraud,’ the statement added.

Michael Rubinstein of Manchester-based Rubinstein, Warburton and Freeman says he recently received a call from credit check agency Experian, because a set of accounts he was named as having audited did not balance. Rubinstein had never heard of the company in question.

Rubinstein’s experience highlights another problem that accountants who have been drawn into the scams face. Both he and Ford had been called up by credit check agencies because of problems with the accounts.

With Rubinstein the set of accounts did not balance, while with Ford a subsidiary of the main company he was supposed to have audited did not actually exist.

Not only do accountants face being unwittingly involved in fraudulent activity, they face having their reputations damaged – incorrectly – because they apparently submitted incorrect accounts.

It is not the first time that Companies House has been used as a medium for attempts at fraud. In January it introduced new systems and checks to try and combat ‘company hijack’ fraud. This particular scam involves criminals forging a document to change the details of a company and then using that stolen identity to order goods and services.

The new systems take advantage of online filing to tackle frauds through accepting specific statutory forms in electronic format only. Reynolds concedes that many of the security problems arise from the paper-based systems. ‘Electronic systems have better security than paper,’ he says, adding that his organisation finds it difficult to ‘get a handle on the complete scale’ of the problem.

Trying to discover exactly who is responsible for clamping down on the practice is also a difficult task as Companies House continues to operate on the basis of trust, and says it receives company information in ‘good faith’.

Carl Meedham of credit check agency D&B says it is ultimately down to the companies handing out credit to ensure their clients are who they say they are. Credit check agencies continue to improve on ways to detect fraudulent behaviour and D&B works closely with law enforcement agencies, he says.

Indeed, the ICAEW advises accountants who find themselves inadvertently involved in such a scam to contact the police immediately.

Related reading

HMRC banknotes