The Debate: should companies pay for fraud?

Links: Cash crisis hit fraud fight

and The case for a private fraud squad

Supt Ken Farrow

Given the current debate surrounding the lack of police resources to tackle fraud and commercial crime, it is natural to look to industry and in particular, the financial services sector to provide financial solutions.

Understandably, the business sector will point to the fact they already make a substantial contribution to law enforcement through business rates and other forms of taxation.

Why then should they be asked to stump up more? Particularly when it appears that the government is not prepared to devote more resources to protecting commercial interests?

One reason is that all too often the losses incurred by a business that has been defrauded are the result of negligence and ineffective audit controls.

Fraud – particularly the risk of internal fraud – is still not taken seriously by senior management who fail to recognise weak internal security or lax auditing procedures in key areas.

All too frequently, the marketing thrust behind the delivery of new financial products overshadows rational assessment of the potential exposure to criminal attack. In these circumstances, why should police resources be diverted from the frontline role of protecting the public?

Although I see many examples among the cases the City of London Police fraud squad investigate, credit card crime is probably the one best suited to illustrate my point. Police were overwhelmed by this problem and have withdrawn resources from tackling the problem because it was felt the industry was not making sufficient efforts to build in safeguards.

The Association of Payment Clearing Services stepped in. Using its influence, it secured significant funding to establish a pilot industry/police unit to tackle organised crime.

This initiative is perhaps a model for the future, and one that I hope will lead other industry groups to collaborate with government and police, not only to protect their commercial interests but for the wider benefit of the public and society as a whole.

Supt Ken Farrow is the head of City of London Police fraud squad

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Sean Holohan

Gone are the days when businesses could rely on a ‘free’ investigation of alleged frauds by the local CID. With law enforcement agencies currently under budgetary constraints, it’s time businesses woke up to the threat of fraud and put their house in order.

At first, you might think the police is the obvious port of call if you suspect fraud within your business. But law enforcement agencies do not have a bottomless pit of available resources, and businesses don’t make heart-rending victims. Think about it – you receive an allegation of fraud, it could be bona fide or it could be malicious and unfounded. Immediately calling the police ties up their limited resources and, possibly, leads them on a wild goose chase. Is that a sensible use of their limited time? Of course not.

Whether the government gets round to putting up the cash for a national fraud agency, or relaunches the Partners against Crime initiative, businesses should be initiating investigations in a way that any evidence gathered may be used by law enforcement agencies in subsequent proceedings should a crime be confirmed.

There are obvious benefits: The police will take more seriously allegations supported with solid evidence; Businesses will gain a strong reputation for the prompt handling of allegations of fraud and employees will be sent the right signals that fraudulent behaviour will be dealt with severely; and companies will be able to exert more control over the investigation.

I’m not suggesting investigations should be run by ‘Have-a-go Harrys’ on a ‘suck it and see’ basis, but there is sufficient expertise in the marketplace for businesses to initiate professional investigations in advance of passing cases to the police.

It may be that industry needs a kickstart or incentive – additional tax credits for reasonable investigation costs or reduced insurance premiums for those businesses demonstrating a track record of prompt, professional and proportionate efforts taken to investigate and deter fraud.

The thorough vetting of employees, particularly senior management, is an example of a step that dramatically reduces the risk of fraud.

Businesses must now get used to the idea of funding fraud investigations.

Sean Holohan is a senior manager of fraud investigation & recovery services at BDO Stoy Hayward

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