1. www.smith.williamson.co.uk Factoring Conference Warsaw, October 2003 Tony Murphy Director, Corporate Recovery

2. Introduction to Smith & Williamson Limited A private Bank / Investment House & specialist financial service provider, established 1881 Current turnover circa £100M, 9th biggest practice in UK Market specialism in recovery for the Factoring / Discount Industry

3. Fraud Detection & Prevention Most frauds are variations on a theme, which are learnt, or copied. The key to detection & prevention is accordingly understanding the likely problems & the related indicators. It is therefore critically important to implement training FOR ALL STAFF Training must be detailed and practical on the types & mechanics of common frauds Share knowledge & experiences within the industry Learn from previous errors

4. “Warning Signs “ Rapidly expanding businesses --- Over Trading “Old & Tired”; losing market share, disinterested management, decreasing sector, new products taking over, increased competition Highly geared companies, or those with a high overhead base. Very turnover sensitive Fundamental technological or sociology [ legal ] changes in the market

5. Accounting Issues Delays in submitting accounts Capitalisation of Profit &Loss costs Shifts in year ends Manipulation of group accounts / Inter Company trading Treatment of Extraordinary / Exceptional items Non disclosure of contingent liabilities

6. Management issues “ One Man Rule”. Dictatorial director who controls all aspects of the business Non - participating executive board Weak finance function, which can be over ruled Lack of management depth, and experience, therefore susceptible to loss of key personnel & general inability to react to change

7. Most Common Types of Fraud Multiple Financing Memo Invoicing Fresh Air invoicing “Cross-Firing” Document Falsification [ VAT Carousel ]

8. There is a clear recognition / understanding of assignment and effective priorities between secured creditors Mature & experienced secondary support industry for recovery by specialist Accountants, Lawyers & Agents Prompt & vigorous / effective enforcement through Receivership / Administration and Liquidation procedures Lenders have Confidence in Recovery Recovery - UK

9. Recovery - Internal Systems In-house / external staff training designated “Warning Signs” in internal reporting nominated Recovery Manager & support team with agreed recovery procedures nominated advisers; accountants, lawyers and agents

10. Policy Issues Central Register of charges / legal interest Clear legal definition of priorities between completing claims Recognition of Enforcement Rights ; there needs to be an ability to set “Super Priority” for lenders The key is to achieve Confidence in Recovery

11. Summary Most of UK recoveries have an element of fraud Most frauds are variations on a theme & are learnt It is possible to detect problems early Vital to act promptly & decisively Important to create a culture & robust legal framework of vigorous recovery