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Fraud regulations not fit for purpose, says fraud watchdog

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20th Sep 2010
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Corporate fraud reporting requirements are confusing and lack a common thread, according to a new report published by independent fraud watchdog, the Fraud Advisory Panel (FAP).

The report calls on government and the business community to develop a more consistent approach to help reduce corporate fraud which is estimated to cost the UK economy £30bn a year.

“The current corporate fraud reporting regime is based on a confusing hotchpotch of internal and external obligations which is undoubtedly hampering the fight against fraud. This really isn’t good enough,” says Ros Wright, chairman of the Panel and a former director of the Serious Fraud Office.

“Corporate fraud is a very real and pervasive threat to UK plc. It does great damage to individual businesses and to the economy as a whole. If companies do not have a true handle on the fraud problem within their organisations they are going to fall prey to fraudsters” she said.

A special FAP project group of industry experts conducted an extensive review of relevant legislation, regulations and guidance, followed by a pair of stakeholder forums which sought the opinions of more than 50 business leaders and representatives from law enforcement, regulation and professional services.

The report’s findings reveal that:

  • There are few requirements for companies to have internal fraud reporting arrangements in place and very little appetite amongst stakeholders for more prescriptive arrangements.
  • Stakeholders have mixed feelings about the adequacy of anti-fraud systems and processes inside listed companies.
  • The majority of frauds are still uncovered by accident or by a whistleblower – routine internal controls play only a minor role.
  • Compulsory obligations to report fraud to third parties are limited mostly to financial services companies (to the FSA) and money laundering (to SOCA).
  • There is no general obligation to report corporate fraud (other than money laundering) to UK law enforcement agencies.
  • Shareholders and the market need not be told about a fraud unless it threatens the company’s stability or share price.
  • The anti-fraud role of auditors is widely misunderstood and overstated.

The Fraud Advisory Panel, a registered charity established by the Institute of Chartered Accountants in England and Wales, wants the government and the business community to take fraud seriously by considering:

  • The need to streamline existing obligations to report fraud.
  • Giving greater weight to companies’ ethical and social responsibility to report fraud in the public interest.
  • Enhancing and extending the legal and regulatory frameworks for whistleblowing.
  • Placing greater emphasis on educational initiatives to improve and promote the benefits of greater investment in mechanisms to prevent and detect fraud within companies.

 

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By danielgricks
22nd Sep 2010 13:57

The non enforcedment af Corporate Identity theft

In 2008 I discovered that a potential client company had had its registered office moved illegally. The company had traded for some years and had an established VAT registration.

The company's owner investigated further and discovered that at the 'new registered office' a number of other companies were registered. He also discovered the names and addresses of individuals who had changed the directorships to themselves.  A clear case of corporate identity theft.

He took the information to his local police. They took no action and I am advised that they are not required to do so. What is the use of security regulation and laws if the police don’t take action to enforce them and if not the police, who should we accountants report such misdemeanours ?Daniel GricksUpminster Accountants

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By tomriv801
22nd Sep 2010 18:10

grass roots

having suffered fraud on myself, the procedures and all are just about non-existent as far as police and all are concerned. with luck, you may persuade hm customs to investigate a vat fraud. virtually no luck in getting the police to investigate obvious fraud, they are persuaded to look after on street policing. the threshold for auditing companies gets higher and higher so eliminating detection and non-executive shareholder knowledge (who often have abilities to offer in the running of the company)

SOOO - the non-executive shareholder, such as myself has to scurry around trying to find out what the company is doing after being supplied with as good as meaningless accounts. try to gets to grips with legal issues and then employ a lawyer to consult and most probably act on my behalf.

honest joe in his place in a corrupt world.  

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By michaelreddy
23rd Sep 2010 17:03

Build knowledge

Great post and I totally agree. Things need to change where corporate fraud is concerned. I definitely think that one big aspect is training and learning around fraud and what to look out for. Considering that most corporate fraud is detected through organisations employees I would say that most workforces are not clued up on what signs to look out for. By increasing knowledge around detection of corporate fraud and key signs to look out for, the frequency of cases could be significantly reduced.

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