1. FRAUD & INSOLVENCY IN THE CHANNEL ISLANDS AND ABROAD
Presentation
to Guernsey STEP
10 January 2018

2. Role of a Fraud Examiner
Examine data to detect and trace fraudulent transactions
Interview suspects and other parties to obtain information
Produce expert investigation reports
Identify the underlying factors that motivate individuals to commit fraud
Association of Certified Fraud Examiners

3. Role of a Liquidator
Licensed to act in relation to an insolvent individual, partnership or company
Realise assets/collect money and distribute after paying costs
Primary duty to look after the interests of creditors
Investigate actions of directors and officers and pursue compensation as appropriate
Institute of Chartered Accountants in England and Wales

4. Fraud definition
Abuse of position, or false representation, or prejudicing someone's rights for personal gain
A knowing misrepresentation of the truth or concealment
Wrongful or criminal deception intended to result in financial or personal gain
Black’s Law Dictionary
Oxford Dictionary
Serious Fraud Office

5. Occupational fraud - examples
Asset misappropriation e.g. theft of cash; skimming of receivables; transfer of assets; theft of stock
Fraudulent disbursements e.g. falsified wages; ‘ghost employee’; fictitious expenses
Financial statement fraud e.g. improper asset valuations; understated revenue/overstated expenses
Corruption e.g. invoice kickbacks; illegal gratuities

6. Financial cost
Typical organisation loses 5% of revenue to fraud each year
Figure translates to a potential annual fraud loss of $3.7 trillion
Median loss of $150k; 23% of cases losses of $1m+
58% of organisations do not recover any losses
The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

7. Other costs Reputational costs Stakeholder relationships
Decreased morale/productivity
The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

8. Other findings Typical duration 18 months
Small businesses at greatest risk
Industries at risk: banking and financial services
Correlation between anti-fraud controls and decrease in cost and duration
The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

9. Perpetrators Those with greater authority cause larger losses
The longer a perpetrator has worked for an organisation, the higher the losses
Other misconduct: bullying or intimidation
Risk areas: accounting; operations; sales; senior management
Greater losses from people conspiring
The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

10. The Fraud Triangle I cannot afford to pay my bills
I can submit expenses without invoices
I need to deliver targets at work
The other directors don’t review what I do
I have a gambling addiction
I want a bigger house to show how successful I am
I am sole signatory on the bank account
There is no segregation of duties
I cannot afford to maintain my lifestyle
I am only borrowing the money
I am not paid enough for what I do
I need to provide for my family

11. Perpetrators - observations
Fraud is bad for your health!
Fraud is bad for your marriage!
Fraud can affect your sense of good-taste!

12. Fraud detection Detection typically by way of: Tip-off (39.1%)
Internal audit (16.5%)
Management review (13.4%)
The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

13. Fraud detection – cont. Others: - By accident (5.6%)
- External audit (3.8%)
- Confession (1.3%)
The 2016 Report to the Nations on Occupational Fraud and Abuse: ACFE Global Fraud Study

14. Case study 1 Liquidation of a registered Jersey investment company
Controlling party: neither director, shareholder or beneficial owner
Allegations:
Extracted significant sums over a number of years
No commercial justification for these ‘loans’ and other payments
Significant amounts outstanding
External creditors
Forensic investigations conducted and proceedings issued for £40m+
Ongoing matter

15. Case study 2
Instructed by directors of a Guernsey trust company which had suffered a fraud
Perpetrator was a long-standing director
Investigations in conjunction with the client to establish the extent of the fraud – other offences uncovered
Perpetrator denied that he had benefitted financially from the fraud
Perpetrator was sanctioned by the GFSC and jailed for two years

16. Case study 3 Registered Guernsey investment company
Investment manager with significant control
Allegations:
Diverted funds to personal accounts
Illegitimate expense claims
Pledging of company assets in support of personal loans
Alleged fraud c£2m over 20 month period (£100k pm)
Assets successfully frozen: house; sports car; jewellery
Perpetrator sentenced to a prison term .

17. Case study 4 Liquidation of registered Guernsey investment company
Investment manager with significant control over business
Used client monies to purchase personal assets:
Property; personal investments
Liability of up to £8m
Settlement reached

18. Case study 5 Liquidation of a Guernsey business
Sole director with unfettered control over the business
Alleged fraud discovered by liquidators
Cash larceny
Transfer of assets to personal name
Forged documents
Guernsey Border Agency pursuing criminal action

19. Fraud prevention checklist
Anti-fraud training
Fraud reporting mechanism
Employee perception of detection
Management culture: honesty and integrity
Fraud risk assessments
Anti-fraud controls

20. Fraud prevention checklist – cont.
Internal audit resources/authority
Hiring policy
Employee support programmes
Open-door policy
Anonymous surveys on employee morale
Association of Certified Fraud Examiners

21. Contact details Ben Rhodes Director E ben.rhodes@gt-ci.com