The case for a private fraud force

It will come as little surprise to many business people to hear that the police do not have the money or resources to fully investigate fraud cases.

But frustration has now given way to despair – Supt Ken Farrow, head of the City of London Police fraud squad, left delegates at last week’s ICAEW’s ‘Fraud and how to stop it’ conference with the feeling that they might just as well back their bags and go home.

Which leaves an intriguing situation. Fraud investigation, by virtue of the lack of resources the government has been prepared to hand over, could in effect be privatised.

As Sean Holohan, BDO Stoy Hayward’s fraud investigation partner, puts it: ‘It can’t carry on – if the government is unlikely to fund the #85m it is likely to cost for the National Fraud Squad, industry has got to consider funding this itself.’

It is well known the Metropolitan police will not investigate fraud cases involving less than #750,000; the threshold is lower for regional fraud squads, but there will still remain a significant number of cases that will go uninvestigated by the police.

Holohan says: ‘We are seeing a number of clients waking up to fraud risk as another one of the many business risks – companies cannot continue to think they can get a free investigation by going to the police.’

Alex Plavsic, KPMG’s head of fraud investigation, confirms this view, saying the police will not take on a case unless the initial investigation has already been carried out by the defrauded company.

‘Companies need to ensure they have done an amount of leg work, keeping the police informed as to what is happening, but not requiring any police resource,’ Plavsic says.

‘Once they’ve done that then they can package it up and generally it’s much easier for the police to run with it.’ But a company will need to be very careful in the way it carries out the investigation, as the chances of a conviction could be damaged if there are any mistakes in the process.

‘Companies have to conduct the work to a sufficiently good degree,’ says Plavsic. ‘You have to carry out interviews under PACE – Police and Criminal Evidence Act – and you have to be sure of the integrity of the evidence,’ he says. But this effort could be to the benefit of the company.

According to Plavsic, the company will benefit because it is in control of the process and able to ensure investigations are carried out quickly.

‘They’ve got control over the whole piste until they hand it over to the police,’ he says.

But there is an irony here.

The government has set the police targets in four key areas – drugs, violent crime, burglary and motor crime.

So in effect, the police will be more interested in investigating the theft of a computer than investigating a fraud that could have been perpetrated using that very same computer.

Nevertheless fraud costs.

As Ken Farrow put it when talking to Accountancy Age before his ‘gloom and doom’ presentation at the ICAEW last week: ‘The UK depends on financial services to survive.’

Farrow’s implication is that if the UK cannot get a grip on fighting fraud, then companies, especially in the financial services sector, will suffer with the inevitable loss of jobs – it is not a victimless crime.

Farrow faces his own problems, and here is another irony.

Retention of staff is a growing issue and Farrow faces stiff competition from the business community. In particular, the large accountancy firms are recruiting from the force to bolster their own investigation units – the pay is better, and they don’t feel marginalised.

And those that remain in the fraud squads will not last forever. ‘We’re not getting any younger,’ Farrow says.

With the ever-increasing number of ‘419’ scams and fraudulent transfer crimes – the proceeds of which often end up financing drug operations, ironically – and dwindling fraud squads, the police cannot cope.

The City of London Police is an exception, but even here the 65-strong team needs to take on more officers if it is to be able to help stem the rising tide of white-collar crime.

So industry needs to wake up – if it thinks the police will come to its aid in its hour of need, it’s got another thing coming.

Companies might wonder what they are paying their rates for – the streets might be safer, but not their bank accounts.

A private fraud force could be the only way forward.

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