Three corporate fraud risks, described by Bill Fairweather: the greedy IT director; the charming MD; and the organised crime gang.
First, the IT global director, on a six-figure salary, who decided (metaphorically) to get in bed with suppliers. He received £60k from a router company, and a salary for himself, his wife, a colleague and his wife. He made IT suppliers – if they wanted to keep his business – to pay for trips and expensive meals. With his staff meanwhile he was threatening and arrogant. He made his own accountant falsify his records. He started his own company supplying IT consultants, after convincing the HR director to make all the company’s IT staff redundant; these were re-employed by the company, at an increased price. The company had a worldwide IT system, which had cost millions. The IT man met competitor firms to sell this software. The IT man had his office raided by company investigators and paperwork photographed. The company’s solicitors however advised not to prosecute the man. As the firm was a plc, it would need to report such a major fraud to the City. The company did not go for prosecution and dismissed the IT man. “What would you do?” Bill asked. “My advice is: you must prosecute.” Bill Fairweather, chairman of the Institute of Hotel Security Management, was speaking at a Camden counter-terrorism roadshow on July 30, arranged by the Metropolitan Police at the Holiday Inn, Coram Street, off Russell Square.
How the IT fraudster was given away was not by the competitors warning of the attempted sale, or other senior managers spotting that something was wrong, but of a disgruntled more junior employee saying that the IT man had behaved diabolically at a Christmas party. A similar whistle-blower spelt the end of the company MD who decided to line his own pocket, in collusion with other managers and suppliers who raised false invoices – for coffee machines, equipment and fictitious installations. Head office was signing these off yet no-one in the company was checking capital expenditure items; whether they were installed to health and safety standards, or indeed whether they existed at all. How was the fraud discovered? One of the suppliers’ employees left his job and rang the MD’s company out of the blue. The whistle-blower gave a statement detailing the fraud, and in this case there were criminal consequences: a dozen search warrants, recovered stolen goods, the MD convicted and sent to prison; others in the fraud given suspended sentences.
Lessons? Beware, Bill Fairweather said, of friendships between managers and suppliers, which at the most innocent-seeming can mean receiving gifts of a bottle of scotch at Christmas or an invitation to a day at the races. A clue can be an employee turning up at the office dressed for the races. You should audit your fixed assets so that everything is where it should be; for example, if you have antiques in your hotel or other properties. Watch the lifestyles of staff for change – does someone take up women, or gambling? Bill Fairweather offered a rule of thumb: that 25 per cent of a workforce are totally honest, 25pc totally dishonest, and the other 50pc are as honest as the controls demand. If some people see others putting their hand in the till, they may decide to, too, if nothing is done about it. The Institute of Hotel Security Management (IHSM) is looking to produce a manual of hotel fraud.
As for the organised crime gang: its members were complicit with cashiers, having compromised them by taking them on thefts from one-armed bandits. Those cashiers were then offered some of the proceeds of crime, after the employees stole cheques and mandates for the gang. The gang then set up accounts and did various ruses to gain money. For instance, they would ask another company for contract staff, pay by the cheque, give an excuse why they did not want the staff, and offer some money as a way to convert the stolen cheque. For this the criminals forged directors’ signatures. The gang was caught thanks to an off-duty police officer who happened to be suspicious of the user of a stolen credit card.
Summing up, Bill Fairweather urged the taking up of references; following of policies and procedures; and sanctions for those caught doing fraud. Technology might include CCTV and a biometric, such as a finger, required for access to a cash till. He suggested also a ‘fraud filter’ – take the spending on one part of your business, such as the liquor or food line; or stationary. If spending on stationary doubles for no apparent reason, do you have a kleptomaniac manager buying it?! Or run a payroll check, to see if there are any duplications. Keep an eye on county court judgements (CCJs) – which is not saying someone subject to a CCJ is a criminal; but they might require supervising more. And Bill returned to the recurring clue of a fraudster’s changing lifestyle, which no longer fits with their pay scale. Is an employee buying expensive gifts for his wife, girlfriend, or mistress? And buying expensive clothes? These are things that the fraudster may not in time even try to hide.
