Business Risk Technology Risk Internal Audit

Learning From Fraudsters Martin Gill

Conducted by Perpetuity Research and Consultancy International (PRCI) Ltd

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Price: £55 Eric was critical of accountants and auditors: “Accountants can only work on the figures they have got, audit the same. Auditors came to see me and I just lied to them and gave them false pieces of paper and that was that. The checking process was abysmal. I was not worried because I have 20 years’ experience of auditors. Had they been better at their job I would have been in trouble. What I was doing was simple, but the lack of process enabled me to do what I did, the absence of systems, the lack of attention to detail, the lack of knowledge in auditing and accounting. I had three audits in those 18 months. And I recall a balance sheet did not balance. Now there was a good reason but I did not want it interrogated too much because that could highlight the bit I had taken. And so I worked hard at sorting this, I worked intensely for half a day. I gave the auditor the information and he said, ‘thank goodness for that’, and my thought was ‘you complete muppet’. I really went through that with a passion just in case it was something involving me. There was no interrogation from audit and that was good for me.” “Accountants can only work on the figures they have got, audit the same. Auditors came to see me and I just lied to them and gave them false pieces of paper and that was that. The checking process was abysmal. I was not worried because I have 20 years’ experience of auditors. Had they been better at their job I would have been in trouble. What I was doing was simple, but the lack of process enabled me to do what I did, the absence of systems, the lack of attention to detail, the lack of knowledge in auditing and accounting. I had three audits in those 18 months. And I recall a balance sheet did not balance. Now there was a good reason but I did not want it interrogated too much because that could highlight the bit I had taken. And so I worked hard at sorting this, I worked intensely for half a day. I gave the auditor the information and he said, ‘thank goodness for that’, and my thought was ‘you complete muppet’. I really went through that with a passion just in case it was something involving me. There was no interrogation from audit and that was good for me.” Table of contents

Foreword 7 Acknowledgements 8 Executive summary 9

1. Introduction 10 i. Staff dishonesty in perspective 10 ii. This study 11 iii. The sample 12 iv. Introducing the interviewees 14

2. Why the offences were committed 16 i. Debt (and greed) 17 ii. Boredom and lack of structure to life 19 iii. The search for status 20 iv. Blackmail 21 v. Temporarily unbalanced 22 vi. Organisational cultures and structures 23 vii. Opportunism 29

3. How they did it 31 i. The knowledge and skills needed 31 ii. The role of audit 37

4. Getting caught 41 i. How the crimes were identified 41 ii. Initial accusations 42 iii. The sentence 45 iv. Contemplating life after prison 47

5. Conclusions 49 i. Reducing opportunities for fraud 49 ii. Tackling resources used by fraudsters 49 iii. Assessing the offenders’ perspective 50

Appendices 51 A Methodology 51 B ‘Inside Time’ editorial 54 C Interview schedule 56

About the author 58 About Protiviti 59

6/7 Learning From Fraudsters Foreword

Having investigated corporate fraud or The offenders taking part in this research I have known Martin Gill for many years ‘white-collar crime’ for many years, it can, in many respects, claim to be unlucky, and this research is something that we never ceases to amaze me how easy it is as the surveys into corporate fraud have discussed on many occasions – I am for people to commit fraud within their undertaken by the large accountancy firms delighted that it has now become a reality. place of work. In the last three years, there highlight the fact that many companies As he has outlined in Appendix A, this was has been a great deal of focus on fraud do not report employee fraud to the not an easy project, but I would like to committed by senior management, which in authorities or the police and deal with the commend everyone involved for helping the USA has resulted in the implementation problem internally, usually by dismissing to make it happen. of the Sarbanes-Oxley Act, but the reality the employee. If we are to fully understand is that all levels of employees commit the extent and size of this problem then In my opinion, this piece of research is fraud. This has been demonstrated by the companies must report internal fraud to the long overdue, and I believe that it will add numerous surveys undertaken by the large police. Whilst Martin Gill has not named greatly to the work already undertaken accountancy firms over the past decade. any of the companies, they should be in understanding corporate fraud and Whilst these surveys have highlighted the commended for supporting a prosecution. white-collar crime. It is an academic piece extent and depth of the problem globally, of research but at the same time – unlike they have only looked at the issue from the For my colleagues investigating financial many scholarly offerings – it is a very perspective of the company or employer. crime on a day-to-day basis, there will good read and I commend it to all senior The objective of this research was to take be no shocks or surprises in the findings management. Whilst I enjoy investigating a totally different approach, to obtain an and conclusions of this research. What it complex fraud cases, there is little doubt in understanding of corporate fraud from the does do is pull together the many years my own mind that putting in place effective very people who are responsible for these of experience that we have and present controls to prevent fraud is a much more criminal acts, and to try and understand it in a way that is easy to understand and cost-effective approach in dealing with the why and how they became fraudsters. interpret. The lack of, or weak internal problem of white-collar crime. In reading controls, no segregation of duties, this report, the most obvious finding is how In the current business climate of ever- disillusioned employees and ineffective easy it was for the employee to commit increasing regulation with the focus on internal audit are all well highlighted in this the fraud and get away with it for long improving corporate governance, we tried to research. If this research does nothing more periods of time. The evidence in this report focus this research on fraudsters who were than to encourage senior management to has clearly articulated the warning signs at a senior level within their organisation, look out for and react to the warning signs – they have come from the horse’s mouth in positions of trust and able to defraud of fraud, then it will have achieved a and it would be folly to ignore them. The large sums of money from their employers. great deal and hopefully it will prevent consequences of doing so could be great. The majority of the fraudsters taking part some frauds. in this survey were therefore serving prison Mike Adlem sentences at the time of the research, and In an environment of corporate governance, Protiviti surprisingly serving what I believe (and Sarbanes-Oxley and ever-increasing certainly they did) to be very long terms regulation, many people are arguing that of imprisonment. the pendulum has swung too far, and companies are now focusing on ticking boxes and not looking at the reality of the fraud risk. This report does bring the problem very much into focus; all of the fraud incidents are ‘real’. Acknowledgements

I would like to thank Mike Adlem for all his interest, enthusiasm and advice. We first discussed this study in 1999, and he was always keen to support it – he has been an inspiration. I received help and advice from a lot of people, including Sean Holohan, Adrian Maxwell, Susie Pagan and her colleagues, and others who felt they should not be named. I am grateful to all of them. My colleagues were also extremely helpful, especially Vicki Wilkes and Heather Neal.

The study would not have been possible without the co-operation of HM Prison Service; a lot of busy people gave up their time to help me organise interviews. As noted in the report, this was tremendously time-consuming for us all. I am extremely grateful to all of them for their time and effort.

Finally, I would like to thank those convicted fraudsters who spared time to speak to me and share their experiences; they did not have to do so.

Martin Gill Perpetuity Research and Consultancy International Ltd

8/9 Learning From Fraudsters Executive summary

While it is now accepted that staff • Committing offences was easy, there • Some interviewees described being dishonesty is a serious issue and costs was little evidence of fraud prevention caught as a relief; some were shocked. organisations billions, it is an area that has strategies, and there were easy • Many were concerned at the level of attracted comparatively little research. This opportunities not least because of initial accusations made against them, is no less the case where employees are weak financial or regulatory systems. which were far higher than the offences involved and where they steal large sums, • Offenders abused the position of they knew they had committed. Some even though corporate structures continue trust – which is not only associated felt this made it difficult to co-operate to provide them with opportunities to with seniority – because it was that that with the police. Some admitted that generate considerable illicit gains. In some gave them the autonomy and the lack of they found this scary. cases technology makes things easier. visibility to commit offences, and enable • Sentences were considered to be The research involved interviews with them to feel they would not be detected. tough; in addition to having to repay convicted offenders currently serving a • Most offenders had acquired all the all the money taken (which included term of imprisonment or, in one case, was knowledge and skills they needed via having to cash in pension funds and under supervision in the community having their normal course of employment. selling homes), they received what they already completed a sentence in custody. • The audit function1 was rarely perceived considered long prison sentences. The results were instructive: as a threat, although it was responsible Some were also banned from being for identifying some frauds and company directors. • Reasons for offending include debt and contributed to the identification of • No one said they would commit the greed, boredom, a lack of life structure, some offenders. offences again. blackmail and temporary insanity. • Whatever their initial reason for • Some interviewees claimed that a corrupt committing the offence, most continued company/industry culture facilitated their because they enjoyed the benefits of offending. Some felt very poorly treated having money. by their employers, either through low pay or inadequate rewards, but also because they felt unsupported.

1Audit function: external or internal audit. Introduction

Staff dishonesty is a broad topic i. Staff dishonesty in perspective The longer they are employed, the more involving a range of acts and offences. Although crime in organisations is generally they build up a rapport and commitment to The Association of Certified Fraud viewed as a much under-researched the company. Research has revealed a link Examiners (ACFE) has highlighted four issue,5 there is a wide range of research between a career in the company and low characteristics that typify frauds (and focusing on dishonest staff. It takes a levels of deviance.14 Overall the findings are indeed staff theft offences generally): variety of forms. Some of the research has not that different whether the focus is on • First, the offence is undertaken in secret centred on what is sometimes described what might have traditionally been termed • Second, by committing the offence the as ‘pilfering’,6 or on fairly small thefts7 ‘blue-collar’ or ‘white-collar’ workers. perpetrators are in breach of their duty to – which accumulatively can be costly – and Indeed, the findings from this report, where the organisation other studies on large-scale frauds which the focus is on the amount stolen – over • Third, the offence is committed to benefit have brought down whole institutions or £50,000 – rather than the status of the the offender (directly or indirectly) completely tarnished their reputation.8 employee, further illustrates the overlap. • Fourth, the organisation is the victim.2 One of the major objectives of the literature The seminal work in the study of people These features characterise the range of has been to better understand why people who steal money from business is that of offences that are discussed in this report, steal, and the research has generated a Donald Cressey.15 He studied embezzlers although a few additional comments are variety of conclusions. Unsurprisingly, and found a major cause of theft was perhaps helpful. The focus here is on people often steal because they want offenders having what he referred to the offenders’ perspective and on the the money, but asking why they do so as “non-shareable problems”. As he more serious offences where there was a can be revealing. Sometimes low wages concluded, “In all cases encountered, significant loss to an organisation.3 Nearly are the reason and workers see theft as a non-shareable problem preceded the all the interviewees admit a breach of trust justifiable recompense.9 Past research has criminal violation of financial trust.”16 took place.4 Most often the interviewees played down the significance of personal Subsequent research has questioned stole from or defrauded their employer, debt, although10 this is likely to be more the extent to which findings can be although some (co-)owned the victim significant today.11 But the need for money generalised,17 but it still remains a company, one was a Trustee of a pension is not the only reason why people steal. powerful explanation. fund from which money went missing, Other motivations include a view of poor and one employee facilitated a burglary treatment by the company,12 where theft is – an ‘inside job’. Whatever the offence generated by a grudge caused by what is with which they were charged, what the perceived as incompetent management,13 interviewees have in common is that they and for various reasons people can feel worked with or for an organisation which marginalised. In a different way, length of lost a considerable amount of money, the time with the company is also relevant. and most admitted that they were solely responsible for it.

2 Association of Certified Fraud Examiners (2004) 6 Mars, G. (1982). Cheats at work: An anthropology 12 Baumgartner (1984); Greenberg and Scott (1996); Report to the Nation on Occupational Fraud of workplace crime. London: George Allen & Unwin. Harris and Benson (1998). and Abuse, www.cfenet.com/pdfs/2004RttN.pdf. 7 Ditton, J. (1977a). Perks, pilferage, and the fiddle: 13 Hollinger, R. C., & Clark, J.P. (1982a). “Employee Although the organisation is the victim, both the The historical structure of invisible wages. Deviance: A response to the perceived quality of the Serious Fraud Office and at least one fraud squad Theory and Society 4: 39-71. work experience.” Work and Occupations 9: 97-114. have at different points tried to identify the costs 8 Leeson, N. (1996) Rogue Trader. London: 14 Huiras, J, Uggen, C and McMorris, B. (2000). to the ‘person in the street’ so that the magnitude Warner Books. “Career Jobs, Survival Jobs, and Employee of the theft can be understood. 9 Green, G.S. (1990) Occupational Crime. Deviance: A Social Investment Model of Workplace 3 Although of course these costs will invariably be Chicago: Nelson Hall. Misconduct” The Sociological Quarterly 41:245-263. passed on to customers and/or taxpayers. 10 Hollinger, R. C. & Clark, J.P. (1983a). In a slightly different way one author has discussed 4 As will be shown, not all admitted the offence. Theft by Employees. Lexington, MA: the different attitudes of staff to theft, see, Bamfield, They accepted an offence took place, and that Lexington Books. J. (1998) A Breach of Trust: Employee Collusion and there was a breach of trust, but they denied that 11 Hollinger, R.C. and Davis, J. (Forthcoming) Theft from Major Retailers. In Gill, M. (ed) Crime at they were responsible. Employee theft and staff dishonesty. In Gill, M (ed) Work: Increasing the Risks for Offenders. Leicester: 5 See, Gill, M. (2003) ed. Managing Security. Handbook of Security. Leicester: Perpetuity Press. Perpetuity Press. Leicester: Perpetuity Press.

10/11 Learning From Fraudsters Later research has further examined So how can fraud be prevented? Well, in Specifically, the aim was to identify another concept that Cressey discussed, recent years there has been something of the ‘why’ and ‘how’ of the individual’s and that is ‘trust violations’.18 Put simply, a voyage of discovery in fraud prevention. behaviour, and assess the reasons why they this highlights the fact that those who There is now a wealth of material available were caught. Understanding both why they steal a lot of money do so because they on how to counter almost all types of fraud did it and how they did it, provide clues abuse a position of trust, and are only and thefts – far too much to do justice to it as to how future offences may be stopped able to reap large rewards because they here. But despite myriad ideas and many or discovered, and assessing how they are in a position of trust in the first place. imaginative strategies, frauds continue to were caught may similarly provide further This is problematic for business because take place, staff continue to be dishonest insights. Therefore, the interview schedule in order to function, it needs to trust and large sums continue to be lost. Yet, addressed questions such as: companies and the individuals who work and this is a somewhat strange admission, • How the crime was perpetrated for it; all-encompassing regulation would during this period of discovery, remarkably • The methods they employed to commit be too burdensome and is unrealistic in little attempt has been made to listen the offence practice.19 But positions of trust, almost by to what offenders themselves say.21 This • Why they chose to offend in the way definition, require knowledgeable people report aims to make a small contribution they did with considerable degrees of autonomy to rectifying this. • The structure of the company – whether to act lawfully and ethically. Where they there was anything about the company do not act in the best interests of the ii. This study that allowed it to become a target company, and instead act to meet their The report is based on interviews with 16 for fraud own needs and desires, the consequences convicted offenders.22 The main focus is • Their perception of themselves as a part for the ‘bottom line’ can be severe. Indeed, on people who have stolen large sums of this company one of the reasons why such offences are from organisations with which they are • Ultimately if there were any other factors frowned upon within business circles is connected (usually those that they are which encouraged them to offend against that an abuse of trust is viewed ‘as employed by).23 Listening to what they their employer. particularly deceitful’.20 have to say facilitates insights from a different perspective, and it is hoped that highlighting offenders’ experiences and the reasons for their successes and failures will provide learning opportunities for organisations.

15 Cressey, D. (1971) Other People’s Money. 20 Green, G.S. (1990) Occupational Crime. Chicago: 23 In addition, Ben was included because he acted as a Belmont: Wadsworth. Nelson Hall, p 179. Moreover, a breech of trust businessman to steal money, and it illustrates another 16 Ibid, p 75. is a specified aggravating feature that impacts on way in which companies can be victims of fraudsters. 17 Green, G. (1993) White-collar crime and the study sentencing decisions. As will be seen, some used the organisation to steal of embezzlement. In Geis, G., & Jesilow, P. (1993) 21 There is relatively little research on offenders’ from the tax authorities. (eds) White-Collar Crime. The Annual of The perspectives on fraud. For a good discussion of American Academy of Political and Social Science, the fraudster’s perspective, see Levi, M. (1981) vol. 525, January. The Phantom Capitalists, London: Heinemann. 18 See also, Shapiro, S. (1984) Wayward Capitalists. A perspective of a different type is provided in an New Haven: Yale University Press; and, Shapiro, autobiography; see Brockett, C. (2004) Call Me S. (1990) Collaring the crime not the criminal: Charlie, London: Pocket Books. Reconsidering the concept of white-collar crime. 22 All but one was interviewed in prison, one offender American Sociological Review, vol. 55, June, was interviewed shortly after release and while he pp 346-365. was still ‘tagged’. 19 Levi, M. (1987) Regulating Fraud. London: Tavistock The main point was to understand the iii. The sample range of issues that can impact on sentence main characteristics of the offence and the All the interviewees were male – they beyond the amount stolen. These include points which afforded the opportunity for ranged in age from 24 years to 62 years, the individual’s antecedence, whether corrective action. A copy of the interview and included a junior administrator they pleaded guilty (and at what point they schedule can be found in Appendix C. earning £12,000 per annum (another had did) and whether funds taken had been a salary of £15,000 plus expenses and recovered. Some interviewees had been The purpose of the study was to highlight bonus payments), as well as senior staff, subject to confiscation orders and others the offenders’ perspective. Thus the one of whom was earning in the region were still awaiting notification. Some were report is presented in a way that makes of £250,000 per annum. Some admitted disqualified from holding directorships for extensive use of their words. Interviews that they had earned well in excess of this, a period of several years. While the majority lasted anything from 45 minutes to three by, for example, receiving dividends and were serving their first prison sentences, hours – basically as long as the prison via the sale of a business. Some finished some had previous convictions including would permit – and they were conducted in their education at school; some went on to for fraud-related offences. Indeed one had confidence on a one-to-one basis. Although obtain more than one degree; several were been imprisoned “about 12 times”, mostly the sample is not tiny – not least compared members of professional bodies but had for cheque and credit card frauds, and to other studies of fraudsters – the very been expelled following conviction. Most one offender was serving a sentence for a nature of the study does not lend itself were married or in long-term relationships, range of other offences such as living off to quantitative analysis, and clearly does or had been for at least part of the time immoral earnings. not claim to be a representative sample, they were committing offences, and at which would be near impossible. Rather, least two were gay. Most stated that their The offences that were discussed in it is an attempt to identify insights and partners were supportive and were visiting interviews had mostly been perpetrated perspectives on a range of issues from a them in jail. Two of the interviewees were over many months and often a number source that has typically been ignored.24 maintaining their innocence at the time of years. One interviewee was with his The report begins by introducing the of interview. employer for 30 months, but did not commit interviewees. They are so much the focus the offences until he had been there about of the study that it will hopefully be useful All the interviewees had been convicted of two years, and then all four frauds he to the reader to understand a little about an offence of fraud, theft or deception.25 admitted were committed in a two-month each of them. The amount stolen ranged from £65,000 spell. Another was with the company over to an estimated £25 million. The sentences six years before he started to defraud passed down by the courts ranged from 21 them, and the frauds lasted another six months to seven years. There was no direct years before he was caught, dismissed link between amount stolen and sentence and imprisoned. received, because of course there are a

24 Appendix A outlines the methodology. 25 They were convicted of a variety of offences that included: conspiracy to defraud, obtaining money through deception, false accounting, obtaining a pecuniary advantage through deception, fraudulent trading as well as offences relating to non-payment of tax. In this report, the words ‘fraud’ and ‘theft’ are used interchangeably to refer to losses to an organisation.

12/13 Learning From Fraudsters All the interviewees had been convicted of an offence of fraud, theft or deception. The amount stolen ranged from £65,000 to an estimated £25 million. iv. Introducing the interviewees Geoffrey Philip All the interviews were conducted in Geoffrey, a senior manager, defrauded Philip was a director and part-owner of an confidence, no names were recorded and his company of more than £400,000. He entrepreneurial company which sought interviewees were given the option not to oversaw a budget of approximately £20 to find venture capital for clients. The answer any question if they did not want million without always having to account company was paid in two ways: a fee to.26 Thus all cases have been anonymised, for how it was spent and was able to sign for work undertaken, supplemented by all names have been changed to protect off invoices of up to £25,000. Early on in his a success fee. After four years of trading the identities of those involved, and no employment he identified that there was and a turnover in excess of £4 million, employer or company has been mentioned. no internally regulated financial systems, the company was investigated by the and he exploited this by signing off invoices Government. This followed complaints Jeremy himself and paying monies into a personal from clients that they had failed to deliver Jeremy perpetrated a fraud amounting account he had set up. The account services and had been operating a company to approximately £240,000. Jeremy set appeared as if it was that of an independent without the skills to do so. Although he up and managed an almost identical contractor in the hope that his employers pleaded guilty at court, Philip maintains privately-owned company, which he would not notice. that he never set out to commit fraud operated in tandem with his duties for a and claims that he never intentionally parent company. He continued to claim the William behaved illegally. salaries and expenses of staff that were William was a senior manager convicted no longer on the payroll. He manipulated of conspiracy to defraud his company of George records of work completed for the parent an estimated £25 million. He worked for George was a communications manager. company; when staff were actually working an acquisitions-based company. Although He was convicted of obtaining money for him on a private basis he altered convicted, William claims he is innocent. by deception. George held an influential payrolls and work rosters to hide this. He accepts that a fraud took place but position within the company, with signing He was solely responsible for both the claims that he was an innocent scapegoat authority for up to £75,000. Within a management of the financial systems of and that a range of financial irregularities, two-month period, George stole about his private company and the work carried as well as a big debt, were covered up by £250,000 from his employer by submitting out for the parent company. powerful executives. false invoices for fictitious companies and paying the funds into his own private Liam Peter savings account. He did not need the Liam was a manager. As a child he had Peter was a surveyor. In his early twenties, money and still has difficulty accounting for been abused by a gang. At the age of 16, he was prosecuted for gaining a pecuniary the reasons. He was caught when he left he escaped this life but 20 years later advantage, and he lied to his employer the company and his successor uncovered he ran into the gang of abusers who had about his qualifications. Subsequently he the fraud. retained photographs. He found the set up private companies and used them to images “shameful and embarrassing” and defraud his employers and was sentenced Robert so when a member of the gang asked for to five years in prison. He was released Robert defrauded his employer of £10,000 for the negatives, he paid them. in 2001 and did the same again with a approximately £65,000. He did this by The blackmailer returned six weeks after different employer from whom he stole faking pay-outs on insurance claims. In fact, the payment, threatened to circulate more about £900,000. He is currently serving six he paid the money to friends and shared images, and wanted him to stage a burglary years in prison for these offences. Peter is the proceeds with them. He managed of the warehouse where Liam worked. He remorseful. He sought status and respect to avoid capture because he wrote says he was desperate and facilitated two that financial advantage can bring, and is cheques just below the limit that needed burglaries from his employers resulting in very critical of other crimes he committed authorisation (£750); he circumvented losses of about £300,000. Despite trying to for his employer such as inflating invoices. internal checks and those of the auditors by cover his tracks he was caught by CCTV. He felt the industry was corrupt and he was understanding their practices and carefully another example of it. selecting only those files likely to attract least attention.

26 In practice this did not happen. All those who agreed to participate appeared to engage completely. Just one interviewee appeared in a rush to get away and that interview lasted just 45 minutes.

14/15 Learning From Fraudsters Gregory Alan Tim Gregory worked in the area of credit Alan was a prolific offender. He was a Tim had received a suspended sentence management and was especially skilled at specialist in cheque and credit card fraud for a single fraud offence nearly 20 years debt recovery. He considered the industry and had been in prison many times. In ago, but is currently serving a three-and-a- he was in to be corrupt. Indeed, the fact the early 1990s, he decided to go straight half-year sentence for conspiracy to defraud that management and other staff were and got a job that eventually led to his £900,000 – his only other conviction. His dishonest eventually influenced him. He appointment as Sales Director. He was offence involved receiving money and also felt badly treated, and after six years’ successful but debts and boredom led him then supplying cars late or not at all. Tim loyal service, claimed he had had enough. to steal £140,000 from his employers, a claims to have run an honest business He exploited weak accounting systems multi-national electronics company. He and was merely functioning as was industry and over the next six years he stole over knew he would be caught but he did not practice, albeit that a common shortcut £1.5 million, mostly in cash. care. However, he did not expect to receive involved invoicing for goods before they four years’ imprisonment – he had hoped to had been delivered. Tim had hoped he Malcolm get two years. Immediately he finished his would not receive a custodial sentence Malcolm admitted that he had lived life sentence, he was rearrested and sentenced and feels harshly treated. He has been “close to the knuckle”. He was already to six years for an unrelated offence. made bankrupt but does not want to return a declared bankrupt and was serving a to business on his release, partly because suspended sentence for financial offences. Colin he considers it “philosophically unsound” He was convicted of raiding a pension Colin owned a company and was serving and partly because he no longer feels he fund – of which he was a Trustee – of three and a half years for non-payment has the types of skills necessary to make £2 million. There was no doubt that the of company taxes. He only refused to pay it a success. money disappeared and that a fraud took company tax, principally because he felt place, but despite pleading guilty at court, taxes were too high, and because he felt Edward Malcolm now claims he is innocent and that he could avoid them easily. He always Edward worked for Tim and effectively pleaded guilty only to protect his partner paid personal tax and VAT because he did acted as his deputy. He played a part who was also involved in the running of not want to attract undue attention. Colin in most aspects of the businesses. He the Trust. Malcolm’s account provides managed his own accounts so that he received a sentence of two years and nine important insights into the murky world of could disguise his earnings, and he felt months for his part in the conspiracy to financial irregularities, although his denial he had covered his tracks well, indeed he defraud. Edward maintains that he should of guilt must be borne in mind. considered himself unlucky to get caught. not be in prison and is still surprised that his offences could be defined as being of Seth Eric “jailable quality”. He feels that his father, Seth ran his own business in the leisure Eric had been a successful property for whom he was a carer, and his young son industry. In the mid 1990s, he and one of developer and had accumulated sufficient have suffered a great deal as a result of the the co-owners decided that they could grow wealth to be deemed a high net value offences, and he admits to feeling bitter the company more quickly if they did not individual, and the business he mostly about his treatment. He does not yet know declare all their earnings and thereby pay owned was worth in excess of £150 million. what he will do in the future.27 less tax. Unbeknown to them, HM Customs One deal, however, went drastically wrong and Excise discovered the fraud quickly and Eric needed another source of income. and spent the next few years building up He started to fiddle the books, at first with 27 In addition, Ben was interviewed. He has been the evidence. By the time they arrested the full intention of paying money back, a career criminal, which started after adverse Seth, they reported his share of the debt when a single deception turned into many experiences in children’s homes where he mixed to HM Customs and Excise and the Inland and he found that he had to lie continually with people associated with crime, and was later driven by an addiction to drugs. Ben was serving Revenue to be in excess of £800,000. Once to cover his tracks. In the end, colleagues prison sentences for deception offences. He rightly discovered, Seth pleaded guilty and was spotted a £multi-million gap in the says his offences were more like identity theft in that he pretended to be a senior company manager surprised that in addition to paying all accounts. Eric was distraught at the damage and withdrew money from a company account, so monies back (including a fine); he was also to his reputation but after a failed suicide he acted as a businessman to defraud companies. Of the money he obtained most was passed on to sentenced to four years in prison. attempt, he admitted all the offences and others who carried out all the preparatory work. was sentenced to seven years in prison. He hopes to start a new life when he gets out away from drugs and crime. Some observations from Ben have been included in the report because he was able to offer some helpful insights. 2. Why the offences were committed

Offenders’ accounts typically note a range Thus, there are seven main explanations for of reasons for committing fraud – often why the offences occurred when they did, there will be what one writer has called and why they continued. It is important to ‘distal’ factors. These are influences that stress that they are not mutually exclusive occur away from the scene and may be – they frequently overlap. Some stole to pay related to events from the past, including debts, but once the debts were cleared they childhood, and proximal factors, which continued to steal because they enjoyed include those that occur at the scene of the having the money; some interviewees crime, such as an easy opportunity.28 They referred to this as greed. Other reasons will appear in different combinations in include boredom and lack of life structure, different contexts, thus they are not easy to the search for status, blackmail, what can classify. Yet, understanding why a crime has best be described as a temporary loss of occurred gives clues as to how it might have balance or sanity, organisational culture been prevented, so the main explanations and opportunism. In the past, opportunism are presented here. As will become evident, has not been considered a ‘cause’ as such, the motivational forces are very much those but not so today. Many criminologists that have been identified by prior research recognise that offences take place because and discussed earlier, albeit that the of the opportunity, and without which the circumstances and contexts in which they offence would never have been committed.29 occur vary considerably.

28 Ekblom, P. (2000) “The conjunction of criminal 29 Felson, M. & Clarke, R.V. (1998) Opportunity Makes opportunity – a tool for clear, ‘joined-up’ thinking the Thief: Practical Theory for Crime Prevention. about community safety and crime reduction.” Police Research Series 98. London: Home Office. In Ballintyne, S., Pease, K. and McLaren, V., eds., Secure foundations: Key issues in crime prevention, crime reduction and community safety. London: Institute for Public Policy Research; Ekblom, P (2001) ‘The Conjunction of Criminal Opportunity: a framework for crime reduction toolkits’ – Crime reduction website: www.crimereduction.gov.uk/learningzone/cco.htm

16/17 Learning From Fraudsters i. Debt (and greed) Personal debt (and the need to do something about it) was a major contributory factor to some of the frauds that were discussed. A case in point was Robert:

“I was in massive debt and it started from there. I had taken loans out and once I had paid my loans off I had less than £100 per month. So I had to do something.”

Even after his debts had been settled, Robert continued to steal from his employer because,

“I just did not have enough money to do the things I wanted to do”.

In addition,

“I had an addiction to spending”30

and the frauds allowed him to maintain a lifestyle that would not have been possible on his salary alone. There was another influence on Robert; the cheques he had stolen were cashed by a friend, and as soon as Robert cleared his debts his friend claimed that he still needed the money, and so the frauds continued.

If Robert’s difficulty was in part due to the fact that he shared his problem with a friend who encouraged the offences and shared in the rewards, Geoffrey is the classic example of a person having a “non-shareable problem” since he was not able to share the burden of debt with those closest to him. Geoffrey had set up his own business after having been made redundant, but the failure of one contract resulted in significant financial loss:

“I committed the offences because I was in financial difficulties. I ended up in debt and due to the personal circumstances with my family and my wife, it meant I couldn’t deal with the debt. I was unable to control our expenditure… both the children were at private school… And I was pressured to pay up to meet the family commitments… I had borrowed lots of money and owed lots of money to friends. My wife was terrified by the idea of debt so I could not share this with her; it would have devastated her so I tried to solve it all by myself.”

30 Addictions did not feature highly in the interviews, Alan admitted he had gambled a lot but that was not a major reason for his offending. Ben though was addicted to drugs, and he saw this as the only reason for his frauds: “Drugs have ruined my life. I could have done so much better and truly the amount of money I’ve gone through is horrendous. It was easy for me to go through £1,000 per day. Because I am used to taking the risk it becomes a lifestyle; it is not a risk any more, it is just a lifestyle… The worst thing in my life was being introduced to drugs. It has been the bane of my existence.” Defrauding his employer became the only way Geoffrey felt he could solve his financial problems:

“When the opportunity presented itself to take the money, I did.”

Geoffrey – like Robert – continued to steal long after his debts had been cleared:

“I was in a mad spending frenzy – even now I cannot account for most of it but it was things like holidays and luxuries and school fees… but I got used to having the money. I couldn’t leave home without at least £5,000 in my pocket to make me feel better.”

Eric was confident that greed (as well as pride) was a main motivator for his offences:

“I was living the high life. I had become a high net worth individual and I was keeping up the lifestyle, cars, spending a lot of money on other people – especially my kids. The greed drove the demand for keeping up a lifestyle and the pride part was that I did not want my family and peers to see me on the rack. I had not been there really. I have never received big knock backs. I set out at all costs to maintain the illusion, very much Walter Mitty land. I knew I was digging a hole but I felt that something would turn up. I looked at it as a cash flow problem, I knew it was theft. I had seen similar massaging things in the past with companies I worked with that were not the same but not far off. I was fiddling the books to make it look good. I was taking the money from the company… the three words that sum it up are lies, pride and greed.”

18/19 Learning From Fraudsters Greed was not always a secondary motive. Philip admitted that greed – in terms of enjoying the benefits that money can bring – was a primary motivator, in that it resulted in him and his fellow directors remaining blind to key management issues in running the business they had established:

“If I am absolutely honest… the business got a bit corrupted by greed and our lifestyle. I was so wrapped up in running the business I had lost sight of the engine room, but I was happy to spend the money. We have two big houses and a lifestyle that we had grown accustomed to and it is difficult to change.”

Colin too felt greed drove his activities:

“I never thought about going to prison. I think we pay too much money in tax. I had an exceptional lifestyle. Money takes over. It just became normal life. Greed takes over.” ii. Boredom and lack of structure to life Alan’s reasons for stealing from his employers are a little more complex. Certainly debts were an issue:

“I had a wife that was not cheap to run. I had to keep finding money for things. I was living a bit above my means. I just started getting in debt, and I was living beyond my means and I did not control it. I was going out every day, I was drinking and I was having a bet. I was given a target… and it was easy, I could do that in a week.”

Indeed, for Alan this latter point was important because, reflecting on his offences, he considers that boredom was a major factor:

“The main reason was boredom and being stuck in a rut. You can always get out of debt, as long as you talk to people about their money and how you will pay it, so I would have said debt, but not now. I felt I had marriage problems but they were in my head… What I should have done was move companies. I was offered this job a year before it all happened and I should have gone, but I was too set in my ways. Then I could have had a new challenge, gone abroad and all that. Hindsight is a wonderful thing.” iii. The search for status Peter also accepted that part of the reason for committing offences was that he was greedy, but in his case it took a specific form, the search for status and recognition:

“The reason I committed offences was basically the will to want to succeed and being seen to do so, and to be successful in eyes of those around me. I would not say the money was the motivator but society sees people in positions of financial wealth as pillars.”

Even after he was released from prison for his first set of fraud offences, he had the same sort of motivation for the frauds that led to his current sentence:

“I would not say I am very easily lead, but when I hear someone glamorising a success story, I feel I want to be part of that. I believe what I am told because of the integrity of what they have behind them… I still had a need to be seen to be successful. Being good at your job is not enough – you always want to be that person that shines a little more… It is about status in the construction industry I was searching for. There is also greed. I was taking someone’s money. With financial status comes recognition of your position in a company and standing in society, and you are more accepted – especially as a self-made man. But I believe that in my case, greed and status are relevant in equal volumes.”

In a very different way, Eric noted that one of the main reasons he started committing offences was because his difficulties in business damaged his pride:

“The loss of face within the business, or the potential loss of face got to me.”

Fraud became the way of obtaining money and keeping up appearances to his colleagues, friends and family.

20/21 Learning From Fraudsters iv. Blackmail Liam breeched the trust of his employers in what is another example of a ‘non-shareable’ problem. He facilitated two burglaries from the warehouse he managed. He disarmed the security and provided key inside information enabling the burglars to make away with goods valued at £300,000. Liam had one minor conviction as a teenager, and committed his offences because he was blackmailed. His story starts when he was still young:

“I was abducted at 12 and was abused sexually. It was awful – I was ashamed, and it was filmed. It went on for years. At 16 I escaped, I got my life together. That was that. Now move forward a few years, about 20. I was on a chat line and I met a guy. When we met up, he was 15 years old and he was selling himself. I tried to help him and it was the same group that abused me. Basically once they found out that I was getting the police involved, they started blackmailing me and said they would distribute my film and wanted money.”

Liam was clear that had it not been for this chance encounter with a gang of serial abusers he would never have committed any offences. He was happy in his life, had a good job and felt he was valued at work. Indeed, he had been paid bonuses for being effective. His shame at his past and the fear that this would be made public led him down a new path that eventually led to prison:

“I got an email at work telling me to back off attached was a photo of me… Then more and more pictures came through, the things I had done were unmentionable and this would drop me in the shit. It was shameful… Then I got an email to meet one of them. When I did I was given photos and told that these would go out unless I paid.”

He paid £10,000 from savings, but six weeks later the blackmail started again:

“I got a private email. They had asked me for my home email, and I gave it because I didn’t want things turning up at work. The email told me that they wanted access to the storage unit to steal [some valuable goods]. There were lots of them and my immediate reaction was ‘no, I am not losing this job I enjoy it’. They turned up with only me in the office and threatened me again with emailing me photos of things I had done. I felt so much shame, I could not go to the police – it was all self preservation. Basically the blackmailer said the police would see the images, my family would get copies, and they gave me 72 hours to say how they could get access to the building to steal all the [goods].” Liam complied and because security was not very good, he was fairly easily able to circumvent it by tripping fuses and unscrewing security meshing. The burglary was successful. Liam decided to resign his job and move abroad, but before he had seen out his notice the blackmailer returned and demanded that he facilitate another burglary. Liam felt helpless and agreed. He claims to have been desperate – he was depressed and he was drinking heavily. He tried to circumvent security in the same way but this time his complicity was evident on CCTV. He was arrested after a short stay abroad:

“My first reaction was what a relief – this is all over with.” v. Temporarily unbalanced While some of the interviewees had considered their offences to be due to a period when they were not in control of all their faculties, not thinking rationally. George was a special case. He was interviewed some two years after the offences took place still having difficulty explaining his offending, although he was absolutely clear that it was not because he needed the money:

“It was not financial. I and my partner were earning money and I had no addictions.”

Moreover, when he had obtained his first amount of fraudulent money he stated that he,

“was bemused. Suddenly I had £65,000; this is a lot of money and there was nothing I wanted to do with it”.

George’s offences occurred within a two-month period shortly before leaving the company, and he feels they were mostly due to job pressures. In the distant past he had been an alcoholic, and work pressure reminded him of a feeling he had when he was drinking of not being in control. He summarised his reasons for offending as:

“a conspiracy of events… immense work in an environment that I was not ready for and I had no support. I went off balance… I had been under a lot of pressure… high level job… company experienced turmoil… was not well supported… stopped meeting with my mentor… opportunity presented itself… work had become so all-consuming… I lost balance to my life… huge pressure… degrees of boredom… I controlled enormous amounts… I had enormous influence.”

22/23 Learning From Fraudsters vi. Organisational cultures and structures Although the culture of an organisation certainly influenced some interviewees, not all were critical. Robert characterised his company culture as,

“laid back where everyone got on with their work and were friends”.

Although he liked his company and the people he worked for and felt that the company was generally supportive towards its staff, he did feel that he should have been paid more:

“I could have got more stacking shelves in Tesco.”

Liam was very positive too. It transpires his company was sold just before he committed the offences, although he was so desperate for the money he would have gone ahead anyway:

“The company was great. If I needed anything [the name of the manager] was there. [The name of the other manager] was there, and she and I worked on the debtors’ list. There was nothing she would not do for me. So I had a good relationship with them. When he sold it I was gutted. I was a cog in a machine, but I still had to do the thefts, I had to. No matter what, self preservation was vital.”

More negative cultural factors were evident in the accounts of others, and the criticism manifested itself in two slightly different but closely related ways. Sometimes the culture of the company was bad, and individuals felt so poorly treated that they sought revenge. In other cases, the organisational set-up was presented as a negative in the sense that it provided a poor example of how to treat people, and this led to resentment. In itself, this would not have been sufficient to generate dishonesty, but it certainly provided fertile ground upon which ideas for such actions could grow. There were examples of both.

For Jeremy, changes in the structure of the company were instrumental in his decision to offend. Jeremy reflects on a culture that was unsupportive of its managers, principally because of a lack of management experience rather than deliberate neglect towards the staff. He recalled that there were no management systems which would assist with appraisals or reviews and this led to:

“feelings of being neglected and isolation. There was no formal appraisal system. We just got letters saying we were doing a good job. No formal reviews were done. There were no systems in place to recognise the needs of managers.” Jeremy felt that the company was not able to manage grievances appropriately. Expression of grievances were “actively discouraged”. He also spoke of a “divide and rule mentality”, especially once the final restructuring had occurred:

“They positively discouraged you from having contact with other managers otherwise you could be accused of mutiny when we were only seeking support.”

Jeremy felt “hard done by” as a result of the early changes, principally because he lost control, and his operational limits were restricted both structurally and geographically:

“Rather than being a director I am now called a manager. I felt it devalued my status and was wholly unfair. I felt very annoyed. I didn’t want to be employed. I don’t work well when managed. I like to trail-blaze, I am independent, determined, a maverick. I felt very disillusioned.”

When the company structure was changed for a second time, not even the carrot of a potential share of the profits of the parent company – if it were ever to be sold – was sufficient to quell his deep resentment and anger. He held the firm view that the company was taking from its managers but not giving sufficient back. He felt a need to restore fairness by whatever means he could, and that means was fraud:

“At this point something snapped. I thought, ‘I won’t get a fair outcome from the legitimate channels so I’m going to take what I can through other channels’… I guess that at some point I knew I would get my own back. Fairness is on the top of my list of life values and I felt I had been grossly unfairly treated… I was so angry within myself and I needed a fair outcome. I felt hoodwinked.”

Geoffrey perceived his employer as “unsupportive and greedy”. He was rewarded financially but did not find the work rewarding – he described his job as “a meaningless experience”. His view of the company appraisal system was one which:

“solely served the needs of an employer and is aimed at you becoming a better tool for the employer. Your appraisal became about your interaction with those who mattered.”

The culture of the organisation in which he worked was one in which unnecessary spending was overlooked:

“rule-breaking occurred from the top down. ‘Anything goes’ was the attitude and there was no coherent reason for rule-breaking to end.”

24/25 Learning From Fraudsters He gave an example where the relocation of an office was undertaken without authorisation and by using petty cash. This was possible because of the absence of any financial controls for anything other than “high-level expenditure”. He knew that staff could incur expenditure without being held accountable for it – the culture supported his fraud.

William’s company raised its capital from the City, and he reflected on a broader culture of greed and suspicion which was characterised by:

“pure fear and greed – that people become driven by the fear that it won’t be you who comes up with the next Microsoft, but it will be your mate next to you, and greed is that once you get there you want more.”

William, who protests his innocence, claims that his speedy promotion was because he was “groomed to be the fall guy”. He stated that he was:

“offered the job as Financial Controller after six months, then moved to Financial Director and then four years as Chief Executive – all by the Chairman.”

William feels that although he was regarded as an “achiever” by the other senior managers, his results and management style made him seem “naive and a good target”. In George’s case, cultural aspects of the company appear to have contributed to a weakening of coping skills required to manage his increasing occupational responsibilities. George:

“loved the company but did not feel that well treated.”

He was under a lot of pressure at work and:

“was so consumed by everything. I had had a meteoric rise and I had no training. I worked my way up because I was creative and they liked what I did, so they set me up with a global team. But I got removed from that. I was doing management, like my PA’s maternity leave or bonus, and I had no skills here. So on reflection I was terribly unhappy. I got lost. Very lost.”

George raised his concerns with the management of the company but these were not resolved satisfactorily. He stated:

“On two occasions I said to my boss that I felt under- supported and I wasn’t coping, that I was overloaded and under-supported, and he said it would get better… I had appraisals and I used to raise these things but nothing ever got done… the appraisals never delivered solutions.” George felt that the company presented a caring face but actions did not follow:

“It was all a culture of giving a perception about people and employees that your well-being is the centre of what they do, whereas what they did was pay you well and give you medical benefits, but when push came to shove they need you to get on with your job, whatever the toll… There was no home life. You lived a company existence.”

Some lamented a company culture that was itself corrupt, this was true from the perspective of Peter and Gregory. The recruitment agency that handled Peter’s induction to the construction industry encouraged him to exaggerate qualifications and experience:

“Although I hadn’t got everything I claimed it got me a job and them a commission.”

He started off working via the recruitment agency, but once he had been there a while, his employer offered him a job on their books:

“They said leave the agency for a week and then we will employ you – that way they save the agency fee. The construction agency is incredibly corrupt, and it influenced me.”31

Peter gave many examples. He did not deny that what he had done was clearly criminal, he admitted the offence as soon as he was arrested, but he felt that a culture of dishonesty pervaded both the part of the industry he worked in and certainly that of his employers. He said he has witnessed payment for bribes so that contracts could be guaranteed. He explained:

“The company that employed me was corrupt, we put in false invoices. Now, no excuses, I set up my own private company that they did not know about. So from my employers I got the tenders to manage, but instead of everyone having an equal chance I arranged for my own private company to get and win the tenders. Also, I would say that we were doing extra work. So for example, I would say my own private company has incurred extra costs of £100,000, my employer would invoice their client £300,000 and we would get £100,000 and they would get £200,000, the only loser was the client, who lost £300,000 but they did not realise. It was all corrupt.”

31 It is worth mentioning that interviewees were not an organisation specifically to defraud it. So while overly-critical of company recruitment strategies recruitment strategies are important in denying access – Peter was an exception. Most had not been in to junior staff who may later steal, the fraudsters trouble with the police before, or had only minor who steal the most are likely to have been corrupted convictions, ones that would not have prevented their sometime after joining the company, and there is a employment. And none of the interviewees joined lot they could have done about that.

26/27 Learning From Fraudsters And in another example, Peter explains how he would ensure that his employer gained the maximum for every contract:

“Say a contract was for £100,000 and we had spent £80,000, I would get a company to invoice for £18,000. We would pay them £1,000 for the trouble, and keep £17,000 and that is that. All dishonest and this is what I did for the employer. There are millions spent like this, it is massive corruption on a big scale… I made good margins for my employer but my boss allowed me to screw the client so that we could make money. They were all corrupt and being like that enabled me to get accepted by the company.”

Within the company Peter felt unsupported:

“I was supervised but not to a level that you would expect. They were under-resourced and I abused that position.”

Peter was never prosecuted for offences committed on behalf of his employer, and no one from his employer was prosecuted even though Peter made a full confession to the police. Peter suspects that his evidence would not have been deemed reliable.

A very similar account was outlined by Gregory, he too claimed to have committed offences on behalf of his employers over the years, not least imposing illegal financial penalties on those who defaulted on payments. Gregory also believed that a senior manager was guilty of false accounting, and that others were rumoured to be “on the take”. Although he loved his job, he was bitter about the treatment he received from his employers. On several occasions they wanted him to move location, but he was very much against this – he had to fight for his job:

“eventually I won but it demonstrated I was just a number, not a person, no consideration.”

The same thing happened several times over the years and it made him vulnerable. It was what he viewed as evidence of an uncaring employer.

Another stress factor was that debt recovery was a dangerous business. He was threatened and his car was set on fire, but he was not put off from achieving the objective of getting the money for the company and had great success. But he felt that no one was taking an interest:

“I told them I was being ignored, no one was interested… I was still doing my bit, I was working hard at recovering debt, I was in charge of a major debt but no one was interested.”

In some cases reports of corruption within a company reflected the industry in which they operated. Tim and Edward felt they ran a good company and never considered that the practices of invoicing early was anything other than standard business practice for managing restrictive rules. As Tim noted:

“I was just thinking of keeping the business going – I never thought about committing a fraud or deception.” They were adamant that those supplying finance for their ventures were aware of what they were doing – at least those they dealt with were, and were happy to go along with it because in practice everyone gained. Their company provided finance for the leasing of cars, so once they had a purchaser they would arrange the finance and seek the appropriate vehicle to meet client specifications. Sometimes there was a delay while they searched for the right vehicle (usually a matter of weeks but occasionally months) and this led to complaints. The finance company provided the money and often advance commissions to help with cash flow, but Tim and Edward were not supposed to submit their invoice and obtain the funding prior to delivering the car. As Tim recounted:

“What happens is as soon as you get the customer’s signature, you submit the invoice, and although against the rules this is what has happened. No one worries because they know the client will get the car… and without fear of being wrong I would say 80% are not delivered before the invoice. This is because those lending the money… are keen to sell as many loans as they can. This is powerful for motor dealers like myself because it means we get money before we spend it. The client gets the car.”

However, an investigation resulted in them being reported and the police became involved. Clients had reported late delivery of cars and their invoicing practices were discovered. As Edward explained:

“We also changed our way of sourcing vehicles and started relying on imports which were much cheaper, but the supply side was patchy and we were getting delays. We would put documents in early for payment, they [finance companies] would give us a cheque and we would pay supplier, and the car would be delivered in days, but then with imports it would take longer and it could take weeks – it was extremely messy. We were on a tight budget, all not a problem until the shit hits the fan. We put a lot of cars in for payment and then customers said they did not receive their car, and the finance company arrived and wanted to know what was going on and pulled the plug on us. This made it impossible to carry on. They sent in accountants and they checked out the business and they decided they did not want to get involved. So we declared the company bankrupt. I had no reason to believe the police would be involved, I assumed the bankruptcy would be the end of it.”32

Tim and Edward were sent to prison for conspiracy to defraud.

32 As Edward further elaborated, “I pleaded guilty to There were two problems – we just could not get the supplying vehicles without delivering them. We had cars, we had to go through import companies and it the money and customers did not have a vehicle. built up with more delays. Also we had had to pay We never intended not to deliver them, not at all; we back a sum to finance company and this impacted wanted the business to continue. There were some on cash flow”. The finance company involved had that had not been delivered for months because we required a £600,000 advance to be paid back. Tim could not get them it was a concern obviously. and Edward returned the money but it meant that cash flow was under pressure for months afterwards.

28/29 Learning From Fraudsters vii. Opportunism There certainly appeared to be a lack of any effective fraud prevention policy within the organisations in which interviewees worked. They reported little or no training available on fraud prevention, and although some procedures did exist, specific anti-fraud policies were less in evidence. As Geoffrey, pointed out,

“there were no controls – no IT or financial structures”.

Some interviewees were aware that there had been previous examples of fraud within their companies which were similar to those they had committed, and reflected on the fact that either remedies were not implemented or were not done so sufficiently well. George summed up what appears a common view:

“I don’t know whether they had a fraud plan. I suspect that it was not beyond anything rudimentary.”

Sometimes processes were extremely lax and George exploited these when agreeing legitimate expenditure for his employers:

“Even the £75,000 limit was not absolute. I had signing rights whilst my boss was away. There was very slack control. My team would send me invoices and I really did not know what most were about. Similarly my boss did the same. While she was away, I signed off £4 million and I never really knew what it was for. It just came up on the computer and I clicked the OK button. This was endemic. Money got spent like water.”

Jeremy’s offences were facilitated by limited supervision from the parent company, and no formalised system of double-checking payrolls and work rosters:

“There were about three or four visits a year from HQ persons, and usually this was when they wanted something from me.”

In a different way, others – Jeremy, Geoffrey and Peter – set up legitimate33 private companies which they used to perpetrate their frauds. They then relied on their knowledge of their employers’ weak financial systems to facilitate offending.

33 Although the companies were legitimate entities, the conditions of employment may have forbidden these being set up in the way they were. Opportunism was readily apparent for those that owned their own companies, particularly when they were in charge of the accounts. Colin and Seth were able to present the income as less than it was precisely because they owned the company. Colin was confident that he would avoid capture because he knew what to do:

“You could put my accounts before any accountant or bank manager and you would not be able to fault them… I only managed to do it because I ran my own business, I had lots of experience and I knew what to do.”

Seth too believed that he could avoid capture because he did not believe that it would be easy for the tax authorities to spot what he was doing. There were plenty of opportunities because he dealt with hundreds of transactions per day, thousands weekly, many in cash, and he did not consider the risks to be high. Nor did Eric. He too ran a business that he mostly owned and was in charge of managing the accounts:

“because I was the owner, no one was checking my work”.

The one thing he did need to do was manage the accountants and auditors but, as will be shown later, he felt very able to do that.

30/31 Learning From Fraudsters 3. How they did it

i. The knowledge and skills needed While within the criminological literature there has been quite a bit of focus on what motivates people to offend, there has been relatively little attention paid to the skills and resources needed to commit offences. It is certainly true that for a crime to take place there needs to be a motivated person, and this is especially true in the cases discussed in this report – that person needs the skills and resources to carry it out.34 While knowledge of how to commit offences does not mean that one will be committed, nevertheless it is a prerequisite condition, so it is instructive to see how the interviewees learned how to commit the crimes they were convicted of. Moreover, understanding just how the offences were committed provides another point at which to focus the preventive effort.

In Robert’s case, working for an insurance company, he would make the false payments only on certain cases. They would always be on third-party claims because the administrative processes were “poor”. Moreover:

“Third-party claims were collected loosely within case files, so if a file was checked then it could always be argued that the information had fallen out.”

Robert committed offences regularly, he made false payments on claims about once every fortnight, and this had to be managed. One potential danger was that of the 250 to 300 claims paid each day that fell below the £750 level, about seven or eight would be checked by a manager. However, in three years, only once was a false payment he had made picked out for scrutiny, and on that occasion he told the assistant who came to collect the information that the file was missing. Fortunately for him and by his own admission, unusually, that was the end of the matter.

Of course cases could be checked retrospectively, but he always chose old files, ones that were about to be destroyed. He also found out, from experience of an audit, that auditors only checked files where the payout was over £10,000. So he only committed his frauds where the payout would be less than £10,000 and thus he would be able to further hide his tracks.

Moreover, the offence was very easy to commit. As he noted the normal business practice,

“gave me my claim number and that was all I needed”.

It was quick too, as writing out cheques took “only a few seconds”, and even if someone saw him writing the cheque, there was no way that they would know he was committing an offence. He recognised that,

“someone could have seen me take it [a cheque] out and put it in my pocket”.

34 See, Gill, M. (2005) Reducing the capacity to offend: restricting resources for offending. In Tilley, N. (ed) The Handbook of Crime Prevention. Collumpton: Willan. He reasoned that there was nothing especially incriminating about that unless they detected it as a company cheque, and no one did.

Jeremy has described himself as,

“the most successful manager and franchise”.

Because of his success in this line of work and his familiarity with it, he was able to organise a system for covering up his fraud:

“I had 20 cases for the parent company and four private cases. I needed to be able to pay wages for 24 cases. The parent company paid the wages for the 20 legitimate cases and I organised the funds from the other four. I did it by taking funds from the non-legitimate account and paying their wages. So if I was paid £10,000 for the four private cases and the wages were £6,000, I skimmed the rest from the top without HQ knowing about it.”

And to cover for more private work he found ways to keep the fraud going:

“When people employed by [the parent company] left, I didn’t notify HQ and continued to process payments in their names, making advances and then claiming back through my expense accounts. All I needed to do was ensure the wage analysis and staff rosters fitted with the work HQ was expecting.”

Jeremy forged and amended rosters as required, and falsified working hours completed against individuals working for him both privately and for the parent company. Jeremy also claimed salaries and expenses for individuals who were no longer working for the company, thus increasing his own profits. In his opinion he, “became a victim of (his) own success”. His actions required organisational skills as well as knowledge of company procedures, and he had acquired the latter via the normal course of doing his work.

Geoffrey’s fraud to cover his debts began five months after starting employment with the company. He commented that within this relatively short time, he came to understand the company financial systems and identify where they were inadequate. He found that the finance department was,

“staffed by temporary staff and overseen by one accountant”.

Early on he noticed that the temporary staff processed invoices without querying them. In his view,

“there appeared to be no coherent sales or purchase ledger or IT systems”.

32/33 Learning From Fraudsters He soon realised that the company was open to fraud. Moreover, he oversaw a budget of approximately £20 million himself, and he did not always have to account for how it was spent. Of particular importance he,

“was able to sign off invoices of up to £25,000”.

So Geoffrey set up a separate sole trader company and would then invoice his employer for non-existent work, “completed by these companies”. Because of his position in the company, he could sign off invoices and

“no one questioned them”.

He found that they were processed quickly and the money was soon paid into his accounts. Geoffrey also knew from his role on the capital expenditure committee, that:

“The purchase order systems were not enforced. Some suppliers would ask for a purchase order number but most did not.”

All Geoffrey needed to do was to ask the finance department/accounts payable to set up an account for his sole trader account. He could then present an invoice and it was paid. As he said:

“It was easy to set up a situation whereby I instructed accounts payable to set up an account, and present an invoice, which would be sent by BACS straight to my account as a sole trader. No one questioned the invoices.”

Geoffrey also knew that the company did not always complete checks on sub-contractors. Therefore anyone could be claiming for work done and getting invoices below the value of £25,000 paid. In Geoffrey’s opinion:

“the employer did not want to pay the fee associated with the checks and did not see any value in them.”

He was further able to cover his tracks because he was responsible for providing lists of active and inactive contractors to managers prior to audit. He had added his own sole trader company to the inactive list and,

“advised [the managers] to ignore those on the inactive list”, despite the fact that,

“they were paying lots of invoices” out to the company. His aim was to bury the history of the fraud by the time the auditors were brought in. So Geoffrey used his knowledge of the company and skills he had acquired in business to commit his frauds. Similarly, George stole from his employer by issuing false invoices. From his relatively senior position, he was able to authorise payments of up to £75,000, and he too noticed a weakness in his company systems:

“In my work I employed agencies. I got them to budget for projects and say it would cost £2 million. I would say, ‘break it into smaller lumps and I will get it authorised’. That way, the agency had the money to be getting on with, for say, their production costs. It was the only way that they would have the money to get on with the job. But [the company] accounts systems were so antiquated that it could take nine months to get paid, so we had to help them. We at the sharp end needed to act quickly and our agents needed the money. I tried to ensure that all agencies that issued had a slush fund which we could top up. It was not official practice but it was accepted as the way things were done; other executives did the same thing. I had about five agents like this.”

As well as these agencies, George was also able to control funds for other accounts for vendors. He explained:

“We also had an approved list of vendors, and because of time pressures, we did not want to always use these people. Sometimes we just needed something done by an individual… someone not on the approved list. So what I would do is get them to bill one of the agencies holding funds for us. They were fine about it.”

George then said that one day an idea came to him about putting in a false invoice using these processes:

“I thought ‘what would happen if I create a fictitious company and stick an invoice in?’. So I did. I had a signing authority for £75,000 – I submitted an invoice for £65,000. What I did was I rang an agency I used, and I said that there are some guys I am working with and I want you to pay their bills. They said fine and said they will be able to sort this out.”

34/35 Learning From Fraudsters To facilitate the offence he,

“created headed notepaper on my computer and used my savings account. I had them pay the money there and they did”.

George repeated this behaviour four more times, each time using a different agency. In his view it was,

“extremely easy from a practical point… we did such vast volumes that no one would have questioned me”.

Gregory felt confident that his frauds would not be identified. He claimed that he worked in a part of the brewing industry where some people are corrupt. He was especially critical of loans made by the industry and not least the conditions that were attached. This might include a range of penalties, for example, if the recipient of the loan did not meet the requirement to purchase a minimum number of barrels of beer. Strangely, these were not audited, especially so because pubs and clubs deal in cash and many payments received were cash payments. Gregory was disillusioned with his employer, and the availability of large sums that were not closely audited was a temptation too far, and after six years of being honest he started to accept illegal payments. Because the penalty system was ad hoc, he could take payments and cover things in the books by making up fictitious penalties. He started to clear people’s debts for them in return for cash payments which,

“became larger as time went on”.

In one case he accepted £80,000 in cash to clear a mortgage. He knew the systems, he was trusted and no one took much interest:

“this was the dirty end of the business, no one wanted to know.”

One of the risks he did have to manage was the large flow of cash into his accounts. This was much less problematic than anti-money laundering strategists would have hoped:35

“I paid £400,000 in cash over four years to a bank and no one said a word. The most in one go was £5,000, maybe a bit more. I paid it in overnight usually using the night deposit so I did not see anyone, and no one said a word. I paid money into lots of accounts. I put £5,000 in the [named a high street bank] and must have miscounted it. So they called me in and I said I must have miscounted. They asked me where the money was coming from and I said a debt, but I didn’t want my wife to know about it because we were getting a divorce. She said, ‘oh that’s OK then’, and that was it.”

35 One offender, not interviewed as part of this study paid by cheque so he was not suspicious. You go to noted that handling large sums of cash was not as people you know and they can make a lot of money difficult as may have been anticipated:“I would go and so do you and there is not a great deal of risk.” to my brother-in-law who had 200 grand in the bank Ben also noted, “I have never had trouble paying in and give him 100 grand to make a big purchase. I cash. They want your money and they will take it might also give him 20 grand to go and buy a fifty – you need to look the part and be confident, easy”. grand BMW car. He had money in the bank and he Colin claimed that he was able to avoid suspicion in not paying tax because he was calm and because he understood how to present accounts in a way that did not generate suspicion:

“You have to be cool and collected. You could put my accounts before any accountant or bank manager and you would not be able to fault them… I only managed to do it because I ran my own business, I had lots of experience and I knew what to do.”

Colin did not feel his behaviour was risky and was confident that he could avoid capture:

“The knowledge that comes from experience helped me, I am a self-made man.”

Colin does not know how he was caught, but feels that most likely someone informed on him,

“otherwise I would not be here today”.

Alan was in many ways the most unusual case. He had reached a low point and his offences were committed in part to solve a need for cash, but he was not concerned about getting caught. Indeed he knew that his offences would be discovered fairly quickly:

“So I had to start working numbers. I started doing a deal direct [with clients]. I would say this photocopier is going to cost £6,000, give me four grand cash and I did 42 of them in six weeks. I was dealing with agents and so I took a photocopier off them and said within 90 days my employer will deliver another one. But they didn’t and so they started following up. Two or three you can get away with but not 15 or 16 companies wanting photocopiers back.”

Alan was arrested within 12 weeks and was subsequently sentenced to four years in prison.

Ben’s techniques are also worth highlighting in that he had to deceive bank clerks and managers to give him money from company accounts. He acted as if he was a company official:

“I would be supplied with the relevant information, the company, name, address and account number. I would then have the necessary identification papers and present myself to their bank, and I was making large cash withdrawals, maybe £13,000 and figures like that. I would get the money 95% of the time, I had the right attitude and the confidence, and I benefited from being able to communicate with people. I dressed the part so that I looked like a businessman, I was never worried. I would insist they would give me the money. I would get annoyed if they did not, I looked the part and my whole attitude leaves them in no doubt I am who I say I am.”

36/37 Learning From Fraudsters ii. The role of audit One of the risk factors in any financial crime is the role of audit. So interviewees were asked how they perceived audit, and the answers were instructive.

For example, Robert was aware that the audit occurred every four years, he felt that left him relatively safe to offend and cover his tracks sufficiently in between times. In fact, Robert was advised by auditors in advance of the cases they would assess. Where these cases matched the ones which he had been using to perpetrate his fraud, he was able to ensure that the relevant papers had been destroyed or were missing from the files when presented to the auditors. What was more important to him was that he found out that auditors were only interested in checking cases where the payout was over £10,000, and that guided his future choice.

In Jeremy’s case, the only audit completed appears to have been accountancy-based, rather than systems-based:

“There was an accounting audit but not another audit function.”

There appeared to be a lack of cross-referencing of work rosters or timetables against wages. Until the fraud was uncovered he did not believe that he was even under suspicion.

However, in Geoffrey’s case, the role of the audit led to the discovery of his offending. Prior to this he was able to submit invoices without fear of them being questioned and in the knowledge they would be paid, because at that time the focus of the loss prevention department was stock, and therefore they,

“stopped watching what was going on under their noses. It was only in the latter six months of my working there that they began to look at the systems for a purchase order system”.

Despite the fact he was eventually caught by audit, Geoffrey believed that the early internal audit process was “totally ineffective”. Also,

“there was complicit corruption between the auditors and [employer], and the auditors would offset costs against certain job numbers and project numbers”. With this knowledge of the loopholes in the audit processes, he was able to hide the money he was stealing by allocating the invoices to larger projects, knowing that they would help to balance the figures. William had a negative view of auditors. He conceded that a fraud was conducted, but he denies he was responsible despite his conviction. His view is that,

“auditors have no experience of business. They’re just people who know about figures, but not business practice”.

He felt that the audit function was a risk that could easily be managed by those with business savvy.

George was never concerned about the prospect of an audit:

“audits were no problem. You have to remember how powerful I was.”

George felt that audits were very casual affairs and there were never any searching questions that he felt he could not handle. Moreover, his frauds involved just a few transactions when lots were conducted every day. He did not feel he had any need to be extra cautious, and he never gave any reason to arouse suspicion:

“If you were close to budget then people were not worried at all, and if I was going over on something I would just ring up someone, usually a junior accountant, and tell him to change things to different headings. I knew the audits were no problem. I knew what they looked for.”

Peter was not worried about audits. As far as he was concerned, these were mainly Head Office concerns. He did not think it was likely they would discover either inflated invoices or false claims, and that he had done enough to cover his tracks. If audits were a threat to Peter, it was certainly not apparent to him.

38/39 Learning From Fraudsters Similarly so Gregory. He never worried about audits because he felt they were cursory. Indeed, in the first six years of employment, he had argued that the payment system needed to be more closely monitored because there was so much scope for abuse. Payments were made in cash and there was a lot of autonomy to staff in how they managed debts. The company showed no interest and it was this gap that Gregory went on to exploit. Gregory was quite critical of the role of audit. Given the turnover of the company, he reasoned that the amount spent on the audit function was miniscule, and that the most he had to do was answer a few questions for a few hours from time to time that never really penetrated the real problems, and certainly did not get close to the areas he needed to keep secret:

“I knew sales were on the take, so I started dipping. There was no check on any debts being written off. I would produce a schedule of accounts to write off, give it to my boss and he would just sign it. He would never look at any files.”

Gregory was investigated after a complaint was made against him. He was not overly worried because he was not guilty of anything he was accused of, but he did reflect that had the investigation been a thorough one it may have uncovered more:

“There was a complaint from a gangster but they investigated me and I was cleared, which was justifiable because I had not done anything with this chap. I did not find out until later that I was being investigated, but anyway, I was cleared. Now that shows you how good that was then doesn’t it?”

Eric was aware that he needed to be able to manage the accounts to cover his frauds, but even though he used a recognised quality accounting firm he claimed,

“I could run rings around them”.

Eric’s point was that committing fraud was easy, but there was a need to cover your tracks.

“The skill involved was moving money from one business to another. If I had gone under a bus and gone into hospital then someone would have picked this up within a month.” Eric was critical of accountants and auditors:

“Accountants can only work on the figures they have got, audit the same. Auditors came to see me and I just lied to them and gave them false pieces of paper and that was that. The checking process was abysmal. I was not worried because I have 20 years’ experience of auditors. Had they been better at their job I would have been in trouble. What I was doing was simple, but the lack of process enabled me to do what I did, the absence of systems, the lack of attention to detail, the lack of knowledge in auditing and accounting. I had three audits in those 18 months. And I recall a balance sheet did not balance. Now there was a good reason but I did not want it interrogated too much because that could highlight the bit I had taken. And so I worked hard at sorting this, I worked intensely for half a day. I gave the auditor the information and he said, ‘thank goodness for that’, and my thought was ‘you complete muppet’. I really went through that with a passion just in case it was something involving me. There was no interrogation from audit and that was good for me.”

40/41 Learning From Fraudsters 4. Getting caught

i. How the crimes were identified Few interviewees felt that at the time of their offending they were running high risks or were in great danger of getting caught, although Alan was an exception and Eric admitted that he had committed so many offences, he was aware that he was likely to attract attention before too long. Given that the offences were mostly rational, that is there was a predetermined decision to offend, it would be surprising if the majority had continued knowing the risk to be high. Mostly they felt that what they did was not visible and not easily detectable, and felt fairly safe.36

Of course all the interviewees were caught, although many were not absolutely clear about how this happened37. Robert for example returned from annual leave to find that his boss wanted to see him,38 but he still is not sure what alerted the company to his actions. Peter had awarded himself too many contracts and this aroused suspicion, but he could not be sure who alerted his employers. Liam was caught on camera.

Some were caught because of external investigations. Colin and Seth were investigated by the tax authorities, the Inland Revenue, and HM Customs and Excise respectively. Colin suspects someone reported him but he cannot be sure, and Seth believed that HM Customs and Excise became suspicious soon after he started not declaring income because of their own investigations. Malcolm received a suspended sentence for a previous financial crime when some clients complained about his work and alerted trading standards officers; Philip’s offences too were first investigated because of complaints by clients; and Tim and Edward’s business activities were brought under scrutiny at least in part by client dissatisfaction.

Geoffrey’s offences were discovered when his employer brought in new auditors and the focus of audit shifted attention to the day-to-day running of the business and all management systems and Head Office processes were included. On one occasion a remittance advice was returned to the company from a vacant address Geoffrey had been using, and from this the auditors identified the fraud which led to his prosecution.

Fraudsters can be caught because of an “anomaly – a variation from predictable patterns of behaviour or, simply, something that seems out of place,”39 and this is what alerted attention to George. He was caught because his successor, a person he knew personally and helped recruit to the company, spotted financial irregularities which he reported to the company security team. Gregory was caught because he accepted a large cash payment to arrange for a man’s mortgage to be cancelled, unaware that the man was under police surveillance. The man was involved in drug dealing and the police assumed for a long while that Gregory was linked to laundering the cash from drug deals, something he always fervently denied. Eric’s frauds were first spotted by colleagues who only later discovered the scale of his offending.

Despite the different circumstances and reasons which surround why interviewees believed they were caught, there were two important themes that ran through the explanations given. These related to the scale of the initial accusations and the harshness of the eventual sentence. ii. Initial accusations Tim took the news that he was going to be prosecuted very negatively:

“I was massively worried, I was depressed and I had two heart attacks. My marriage broke up and I lost contact with my children.”

In general, there appear to be two common reactions to being first accused of fraud – relief and/or shock. Fraud appears to be stressful. Eric found a life of ongoing dishonesty and the need to constantly lie very difficult to deal with:

“I fronted it as best I could keeping up the façade – behind that headless chickens were running around. I was under enormous pressure with all my friends, family, creditors, and then I started to lie and I was in the middle of a complete vortex of lies.”

When he knew he was about to be discovered he tried to commit suicide and ended up in a psychiatric hospital.

Several of the interviewees, Robert, George, Liam and William amongst them, claimed to have felt a sense of ‘relief’ when they were arrested. Liam’s first reaction on being arrested at work was,

“what a relief this is all over with”, and George noted:

“I immediately felt a sense of relief. I thought ‘thank God it is over’. I composed myself and accepted where I was. It was now going to take a life of its own and I would have to let it go.”

Robert though claims his initial reaction was one of shock:

“I had been off for a week’s holiday and I came in, and I was taking my coat off and there was a tap on my shoulder from my boss. He said I was being suspended on suspicion of fraud and theft. I knew obviously what it was about, but I did not have any details so I just said I did not know what they meant. They escorted me off the premises and told me not to speak to anyone at work.”

36 It is interesting to note how people are caught. of effectiveness, and they still lagged significantly 38 Hence the importance of taking holidays. Eric noted Recently, the ACFE (2004;20) concluded: “We also behind internal audits in terms of catching high- that the requirement to take holidays was a good wanted to determine what methods of detection were dollar schemes. External audits also trailed accidental fraud prevention method and that he was highly most effective in high dollar fraud cases. Limiting our detection in this category.” suspicious of those that did not in the company review to the 71 cases in our study that caused losses 37 And they may have been wrong. As noted in a study that he ran. of $1 million or more, we found that tips were again of armed robbers, offenders can sometimes claim 39 Grabosky, P., & Duffield, G. (2001)Red Flags of the most effective detection method, at 43%, which reasons for being caught that deflect away from Fraud. Australian Institute of Criminology: Canberra, was slightly higher than the rate among all cases. either their own inadequacy and mistakes, or from Australia. Trends and Issues in Crime and Criminal Internal controls again faired poorly as a detection good investigation work. That was less evident here Justice, no. 200, p 2. method, catching only 8% of the million-dollar cases than with robbers but should be borne in mind. See in our study. External audits had a better rate of Gill, M. (2000) Commercial Robbery: Blackstone success among these high dollar frauds than among Press: Oxford. all cases, but they still only ranked fourth in terms

42/43 Learning From Fraudsters Just because they were caught does not mean that they all admitted their offending to the police. George and Robert felt that they might be able to persuade their employers not to take them to court and so did Gregory:

“I thought I could do a deal with the company… But the police wanted me prosecuted and so that was that.”

Many of the interviewees had hoped to strike a deal but in practice this generally meant renegotiating the charges rather than getting them off altogether.40 It seems that when people are arrested, those who are conducting the investigation are not always aware of what had been stolen, and according to interviewees tend to overstate the losses, much to their chagrin. Fraud is often a complex offence and it is sometimes difficult for investigators to be clear about what is missing. The very weakness of systems that facilitate fraud at the same time makes it difficult to account for losses, and from interviewees’ perspectives this allows the minds of prosecutors to ‘run riot’. Some felt that this had been a tactic used by investigators to disarm them (and some admitted it worked), and some felt that they had been arrested early on in an investigation and their arrest was a part of the discovery process. Colin said:

“I pleaded guilty to £330,000. When I was arrested my charge was a million [pounds] and I thought fuck, but it was such incompetence. They were grabbing at straws. They then halved it and it came down a bit more and then interest was added and it kept moving. I had a figure of £250,000 in my head, and so when it got to £330,000 I thought fair enough and I made an early plea of guilty.”

Similarly, Edward noted:

“We never did deliver cars to fictitious customers and eventually they dropped it. Originally it was £2.5 million worth. I thought it was ridiculous, [in police interviews] I ‘no commented’ and eventually we proved it. Originally they said we set up the company to commit frauds, which was absurd, so we fought that too. There were 10 people charged and only three convicted. The police throw loads of mud against a wall and hope it sticks, and there were family members involved which puts pressure on.”

40 Some of the interviewees were aware, or believed they were aware of others who had negotiated successfully with employers in not dissimilar circumstances. They felt that the reason why they were unable to do so may in part have been related to timing and luck. If they happened to be caught and the company or an individual within the company was determined to prosecute then that is what would happen. Another major factor was police involvement (or other enforcement authority such as Inland Revenue and Customs and Excise); once they were engaged it was perceived as difficult to prevent them from pursuing a conviction. Several interviewees noted the difficulty of separating out offences for which they were guilty from many more the police suspected them of, or said they suspected them of. The police thought George had stolen much more than he had and it took months to work this through. Alan too, who admitted the offences immediately to his employers, initially pleaded not guilty:

“I pleaded not guilty because it was the wrong amount, it was too high. But when it came down to a reasonable amount I pleaded guilty, and this was before I went before the judge.”

The problem for interviewees is that non co-operation will be viewed negatively should they later be found guilty. According to some interviewees the scale of the initial accusations puts them on their guard; for certain Edward thought that co-operation would be difficult:

“From the police questions I got the idea that they don’t understand, everything seemed to them black and white but I was getting worried because they did not understand. Personally I felt if I answered questions, I would make it worse. I just didn’t feel confident enough that they would understand the answers. Frankly it was hard enough getting your own barrister to understand. The police thought that we had personally had money but that was not the case. They charged us with setting up the whole company for theft, which was staggering - we did not do that. They charged us with something that I could never accept – it could have been sorted in 18 months not five years. The original charge was £2.5 million and it was eventually £900,000. Co- operation would be ideal but it was very difficult.”

It sometimes took a long time for cases to come to court, and this contributed to some deciding to plead guilty, as Tim noted:

“My solicitor felt that I would get two years if I pleaded guilty, and if not, I could go to prison for eight years. I did not want that. I had been on bail for five years and I had had enough.”

It was not unusual to be on bail for several years. Most were in fact released on bail although George was held in custody from the day of arrest because they were concerned he might flee the country (which he admitted in the interview was a part of his thinking if he could secure bail). While Robert was sentenced within months, others had to wait years. Philip spent this period setting up another business, which he sold for a healthy profit. Gregory and Eric both gained meaningful employment which they claimed had helped them stabilise their lives and the latter case enabled him to realise he could live happily on a much lower salary.

44/45 Learning From Fraudsters One reason why people pleaded guilty was because they feared a wife or partner may be implicated. The pressure on Malcolm’s partner, who was a Trustee of a fund from which money was taken, was so great that he claimed he pleaded guilty solely to protect her. One interviewee’s wife was sentenced to prison for her part in the fraud causing enormous stress because they were unable to speak for months. Peter’s wife was also charged:

“My co-defendant brought my wife into the trial. My wife went through a trial for conspiracy – horrendous. She was acquitted. Her family was devastated and angry with me.”

iii. The sentence In contrast to perceived professional and public opinion, rarely did interviewees feel they had been treated lightly by the courts. Colin’s view was that fraud offences generally were treated harshly:

“I did not want to pay tax and that is what I did. The sentence is high, I have only done what every man and woman in the street would do once they got their pay cheque. Driving while banned and you only get four months and I get three and a half years… The drugs barons have got in this area and so non-payment of tax carries a heavy sentence. I think three-and-a-half years is enough.”

Edward did not expect to get two years and nine months:

“I thought on a bad day I would get two years, on a good day a suspended sentence. It was a very bad day.”

Some of the interviewees struggled, as Seth noted:

“It is too heavy for me and my family. I cannot pay it. I have lost my business, my house, my insurance [pension], my wife [has] never worked in her life and so she cannot help… I have taken it very badly… I am 62, starting again will be difficult. I don’t have anything to start with… I have never been any trouble. This prison sentence is breaking my family… I don’t have much left so they charge me for half my house which is £175,000 plus a life insurance policy worth £22,000 and they want this as well, nearly £200,000.”41

41 41 He co-owned the house with his wife and at the time of the interview the authorities were demanding that the house be sold and his half be taken in part payment of the debt. Indeed, since many had not been in trouble before, they were shocked to be confronted with the very determined way in which compensation was pursued, not least that all their assets, including personal pensions were sought to facilitate repayment. Geoffrey too became aware of the disadvantages to him in the way that compensation is calculated:

“When I applied for my job, I lied on my CV that I had a degree when I don’t. I felt a degree was immaterial to the ability to do the job – but this was left on record as the charge of obtaining a pecuniary advantage. However, it brought with it another £250,000 for the confiscation order – the equivalent to my total salary earned. They see it that if I had not lied, I would not have got the job and therefore not the salary.”

It seems that the only time that money taken is not demanded back is when it has been paid back in full already, or where it was clear that individuals had no assets. Eric paid back all the money he took after he was caught. The authorities seem satisfied that Robert had no assets to pursue, but even someone who had been declared bankrupt was not free from further investigation as both Malcolm and Philip discovered.

It is also important to note that the sentence may involve penalties in addition to imprisonment. These may include fines for non-payment of taxes, and being banned from being a director, which was a source of concern to some interviewees, Malcolm being a case in point principally because it made it more difficult to start a new life:

“I have done too much looking over my shoulder and I would like to be discharged from bankruptcy so I can look after my retirement.”

In general, interviewees received a harsher sentence than they expected. Eric had prepared himself to expect three years and received seven, and Gregory was hoping for less than four years but got more. Robert had hoped he might not go to prison but was not surprised when he received 21 months, Seth did not expect to go to prison for four years and Malcolm was definitely not expecting six and a half years. George felt that his 30-month sentence could have been worse. The one thing that some interviewees claimed helped them in receiving a lower sentence than they might otherwise have got was an early plea of guilty. Colin reasoned this early on and Philip decided that he would avoid a trial because his chances were only rated ‘50-50’, and he was aware that the sentence was likely to be much more severe if he was found guilty at a later date. Whatever objective judgements people may wish to make about how fraud is treated by the criminal justice system, it is clear that the views of those who commit offences is that the penalties are harsh and too severe to justify future offending.

46/47 Learning From Fraudsters iv. Contemplating life after prison There is comfort in the finding that all interviewees noted that they had finished with crime. Given that they claimed they had not benefited financially this is perhaps not surprising. They were mostly optimistic about the future at least as far as avoiding offending was concerned. Peter was emphatic he would not re-offend again:

“Not in a million years. I would cut my little finger off to prove that to everybody.”

Gregory and Malcolm were both committed to getting a job helping victims of fraud and injustice – they were experts and wanted to put their knowledge to good use to earn an honest living. Peter admitted he,

“would like to help prevent fraud”.

Perhaps the best way of illustrating their reflections on their offending and all that followed is to report a sample of comments made. Committing fraud and going to prison is not a pleasurable experience in anyone’s mind, but that does not mean to say that it was without benefits. This is not to suggest that they stopped offending because of prison; some noted that they stopped offending at the moment they were caught, and would have remained law abiding whatever sentence they had received, but prison did provide some time for inner reflection. Colin, who of all the interviewees was probably the most dismissive of prison as a personal punishment, noted:

“I am 49 and I don’t want to come back… I have learned a lot. I have met good people. Some of the nicest people are in here. Everyone in here has a problem, and everyone has a reason and what is amazing is how people handle it. Some lifers have been in here for 17 years. In some ways I would not have missed it.”

For Peter, the latest sentence had confronted him with the drawbacks of a life of crime:

“… my own family disowned me and unfortunately I did not realise my father had died. I am responsible for a lot and not just breaking the law. My wife is supporting the relationship between my son and me. I have had enough; I am not doing this again. The devastation is colossal – I have caused so much damage. I did not look at the overall picture. I did not realise my wife would get dragged in and that my family will disown me. I will walk out of prison on my own.” Robert was hopeful that he could start a new life:

“I want to get another job as quickly as possible. I will tell people what I have done, I will have to. I don’t want any stress. Maybe a supermarket, I will not get an office job or anything in finance. But there are lots of things I would like to do. I definitely will not commit another offence. I have lost a year of my life. It is not as bad as I thought but I did hate it – it’s the boredom. I would never have started knowing what I do now.”

Eric was studying in prison and felt that he has managed to make the most of what has obviously not been a pleasant experience:

“Prison has got me out of a complete web of lies. I am straight with my family and friends and I know who my friends are. I am looking forward to getting out and doing something useful. If I use my talents correctly I can earn a decent living. I have spoken to drug dealers who can earn in a bad week £8,000 and that is the only way they can earn that. Their hill is higher than mine.”

Gregory, who admitted that he had “lost a lot”, was able to articulate some of the benefits:

“Positively, I have had an opportunity to really take a look at myself, and I am grateful for that. I am going into the second stage of my life with a real understanding of myself and what I can do. It cost me a lot but without it I would not have known where to go next. My family relationships are more solid, my father and his wife are closer, I feel I am a nicer person and I appreciate things, I don’t take things for granted, and I can see when I get petulant and stop myself, like when I don’t get my own way. I have learned humility and that it is OK to ask for help. And people do help. It is a strength. I have some friends from prison, some nice people. Actually there is a huge amount of honesty in prison and it is very touching. You see real vulnerability. In prison you are all on one level and it is a privilege to get insights… Fundamentally, I am honest and open. I got myself into a horrible place. Five years ago I could never have imagined myself in prison.”

48/49 Learning From Fraudsters 5. Conclusions

Fraudsters’ accounts suggest a variety of i. Reducing opportunities for fraud • Reducing provocations. Some reasons for offending. Some clearly did One effective way for organisations to interviewees did not feel they had have what Cressey has called a “non- tackle crime is to remove the opportunities, been treated very well by their company, shareable problem”, although Robert did what criminologists refer to as ‘situational which sometimes took the form of being share his problem with a friend, who was prevention’ – that is changing the context in poorly paid or what they considered aware of his debts and suggested fraud as which crime occurs so that offending is less inappropriately rewarded, but on a money-making method. Sometimes the likely.42 And there was plenty of scope for other occasions this was due to feeling original problems that contributed to the this in each of the five main techniques overburdened and unsupported. commencement of offending persisted and of prevention: These were too often at least a trigger so the offending did too. Mostly those who • Increasing the effort. Offenders found it for offending. Clearly, a good corporate had debts and cleared them continued easy because they had easy access to strategy and a properly implemented to commit frauds because they enjoyed the money, sometimes because it was ethical policy are essential. having the money and because they did not cash, but more often because there were • Removing excuses. There is obviously believe that capture was imminent. few barriers to committing the offence. a need for companies and industries That fraud prevention strategies were to promote behaviour that sets good When asked what would have stopped not much in evidence and that audits examples. Some interviewees lamented them continuing with their offending, rarely required fraudsters to change what a poor culture and indeed one that many referred to the need to solve the they did is indicative. Alan may not have bred dishonesty. Some considered the problem that caused the onset in the first victimised his employers if he had been culture ‘corrupt’. place – mostly debt. Peter felt that, “If I properly vetted. had thought I would lose everything, that • Increasing the risk. Increased risks for The fraud prevention literature is would have stopped me”, and many others interviewees would have flowed from replete with examples of how to reduce made a similar point. As they were mostly management taking a greater interest in opportunities.43 There was much in what not career offenders, they had not been their activities at work (but also outside, offenders said to suggest that there is aware of the consequences. They mostly given that some had lifestyles that could much that organisations can do to limit misjudged the risks and underestimated not have been supported by their salary). the chances of them becoming a victim. the consequences of getting caught. The lack of proper appraisals or anything like them meant that interviewees could ii. Tackling resources used by fraudsters While there was no intention in this study not raise their problems and discuss Another way of tackling offending is to to develop data that could be presented solutions (and contributing to them not prevent offenders from gaining or using in the form of a fraud prevention strategy, being ‘shareable’). Closer monitoring the ‘resources’ they need that will enable it is hoped that the insights may help of duties and adding some visibility them to be successful. A recent discussion some achieve those ends more effectively. to their work would have limited the has outlined seven types of resources; Specifically, the aim was to learn more opportunity to abuse their positions of each one when managed represents a way about why fraudsters commit their trust. There is no substitute to running of preventing a crime taking place.44 Here offences and how they do so. In order to a company effectively. these are discussed in the context of fraud provide a summary of the findings, two • Reducing the rewards. This would have and drawing again from data presented in frameworks are used, one focusing on flowed logically from more efficient this study. situational prevention, otherwise referred financial systems – that they were weak to as opportunity reduction, and the other and sometimes non-existent made the on offenders’ resources. These provide a rewards easy to obtain. strategic oversight and direct attention to the sorts of issues that interviewees said made their offending possible and in most cases, easy.

42 For a recent review see, Cornish, D. and Clarke, R. 43 This includes texts aimed at practitioners, as, for (2005) Opportunities, Precipitators and Criminal example produced by the Association of Certified Decisions. In theory for Practice in Situational Fraud Examiners, as well as those emanating from Crime Prevention. Crime Prevention Studies, academia which highlight some of the problems and Vol 16. Monsey: Criminal Justice Press. potential solutions. For example, Smith, R.G. (2002) (ed) Crime in the Professions. Aldershot: Ashgate. 44 See, Gill, (2005) opp cite. • Resources for handling emotional state. • Skills-based resources. Whereas iii. Assessing the offenders’ perspective Although it is often assumed, offenders, knowledge is about the facts that are What hopefully this project has shown is and not least fraudsters, may need to known to offenders, skills are about that there is some value in understanding employ what are called ‘techniques of the techniques needed to apply that the offenders’ perspective, and it provides neutralisation’,45 (that is they need to knowledge. Fraudsters were skilled at important insights into their approach to neutralise any feelings of guilt they may what they did and everyone, bar perhaps crime. Most of the time they found it easy have) – this was not much in evidence. In Liam, knew they had the skill to be – there was not much that they had to learn, fact interviewees rarely felt guilty at the successful. It came from their everyday they just needed to use the knowledge time of their offending either because work; there was little additional they had and skills they already had in exploiting they did not consider seriously enough to learn, and it was more a case of using new but criminal opportunities. There are the consequences of their offences, or their skill sets for a different purpose. stark warnings from many interviewees that because they felt they were justified. • Resources derived from physical traits. organisations are in a position to determine Those involved in non-payment of taxes This was less important in the case of the extent to which they are prepared to be considered the level of the tax burden fraud. However one interviewee noted vulnerable to victimisation. While there is unfair, while others considered their that being big had meant that people no guarantee that a well-run organisation treatment by employers unsatisfactory. were more likely to do what he said with motivated staff, supported and fairly After the event, some lamented that they because he could appear intimidating. compensated, will not produce staff who had underestimated the consequences • Tools or ‘crime facilitators’, including offend, it is nevertheless true that those suggesting that a well-targeted fraud weapons. One of the main ‘crime who do the opposite are much more likely awareness campaign focused on facilitators’ was the autonomy in their to do so. To that extent, fraud prevention the consequences as well as the risks role that enabled them to commit is as much about generating a positive would have done much to commend it. offences without attracting too much and ethical culture, and developing a clear • Resources derived from personality attention. Sometimes status within strategy supported by strong processes all traits. This refers to the characteristics the organisation was also important guided by laudable objectives, as it is about or features of a personality that make because it enabled them to ensure anti-crime specific approaches, although an offence possible, what Colin referred that their requirements were carried they clearly all have their place. to as the ability to be “calm”. He also out unquestioned. Those that owned noted that entrepreneurs take risks and their own business had a particular fraud was an extreme example. Some advantage here. of the interviewees certainly considered • Associates and contacts. Most themselves risk-takers, and recognising interviewees claimed they worked alone. that any gaps will be exploited needs to This was mostly because they did not be a focus for organisational attention. need to involve anyone else, they had • Knowledge-based resources. Fraudsters the skills and so there was little point mostly gained the knowledge they in increasing the risks that came with needed from their everyday work. involving another person. Robert and They understood the workings of Peter who did involve someone else both management/financial systems in the reflected negatively on their partners in organisations in which they worked, crime. In both cases, the partners had and they understood what to do and provided inspiration to start offending how to do it. but both interviewees admitted they were mostly responsible for the offences that did take place. The main role of Robert’s friend was to cash the cheques he stole.

45 For a discussion of this in the context of fraud, see, Levi, (1981) opp cite.

50/51 Learning From Fraudsters Appendix A: Methodology

Choosing a sample Second, and at the same time the HM In addition to taking a lot of time to Identifying potential interviewees, Prison Service was approached, an generate initial responses to the letter,49 gaining permission to see them and application was made to the Applied it also took time to identify potential arranging the interviews was unbelievably Psychology Group of HM Prison Service for interviewees. Several methods were used. time-consuming. In order to qualify for permission to conduct research within HM Sometimes posters were put in a prison inclusion in the study, they needed to have Prisons. They circulated the application wing and those interested were asked to misappropriated over £50,000. This was to the Service’s Area Managers and respond. Sometimes potential interviewees never going to be easy, and so a variety Psychology teams for consultation before were identified via the computer system, of approaches was chosen. approval could be given. In the event, but this too caused difficulties. The system additional information was required and classified offenders by their index offence, First, potential candidates were identified this caused delays, but approval was given but those who stole from their employer from the Press Release Site of the Serious subject to each individual establishment could be prosecuted for either theft, fraud Fraud Office (SFO),46 and from newspaper then agreeing to support the study. Letters (in some cases tax offences) or deception.50 articles which detailed cases of employees were sent out to 33 prisons identified by However, not all people convicted of those defrauding their employers. Where names the Head Office. This noted that formal offences would automatically be relevant were available individuals were traced back permission had been given and with given the aims of this project. There were to the sentencing court. From there, legal a request for access. In the majority of two ways around this problem. In some representatives were contacted and asked cases, follow up calls were made before prisons files were checked for each offence to approach their client about possible a reply was received. Some claimed that to see if it was relevant. In other cases, involvement in the study. While in general, they did not have any inmates that met the research team (or prison staff) wrote the courts were mostly helpful in identifying the parameters of the research. Some said to everyone and asked them to respond if legal contacts, approaches to over 40 legal that because of understaffing they would they qualified and were interested in taking teams produced a minimal response – be unable to help.47 Some did agree to part in the study. In all cases response rates in fact only one interview resulted form allow access subject to security checks were low.51 Moreover, the process was time- this work. being made on the author. Perhaps one consuming. On two occasions people left or of the strangest findings is that each moved prison before the interview could be establishment has a different procedure arranged and the whole process had to start here. Some allowed access by merely afresh. In short, it took ages to generate checking the author’s identify on arrival. responses. The application for approval Others required very detailed checks, was made in July 2004, and permission including completed application forms, was given in September of that year. But references, proof of identity and address prisons were still being contacted for help etc.48 This was very time-consuming and in arranging interviews in July 2005. in one prison, after all the checks were undertaken it transpired that there was no one who met the research criteria. The system as it currently stands is a burden for staff and researchers and is in urgent need of refinement.

46 www.sfo.gov.uk 49 The point of contact at prisons was usually 50 Searches were typically carried out for fraud and 47 Because it proved so difficult to contact potential psychology staff, and as they sometimes pointed deception offences, searches for theft generated too interviewees these prisons were contacted again and out, not unfairly, they were already busy and it was many responses to be helpful, and as many prisons asked if they would be prepared to help this time with difficult to justify research as a priority. As noted in noted searching files was time consuming, some support from the research team, but the letter failed the acknowledgements the study was only possible therefore refused to help for this reason. Access to generate any additional interviews. because many dedicated time to arranging interviews, to files by the research team was mostly prevented 48 In one case the prison required that the Martin Gill the completion of the study owes much to because of data protection concerns. undergo a security awareness course. their efforts. A third approach was adopted. An Eliciting information from interviewees The interviews advert was placed in the ‘Inside Time’ The interview schedule was informed All interviews but one took place at newspaper – a newspaper aimed at the by the findings of the literature review prisons, the exception occurred because prison community (see Appendix B). and the interests of the client, and the respondent had been released on tag This generated a handful of very positive a range of experts were consulted by the time contact was made, and he leads. Letters were sent directly to these including specialists in fraud prevention. agreed to the interview being conducted individuals thanking them for their interest A semi-structured interview schedule at the place where he was staying. Prior and advising them that permission would was developed. This ensured that the to the interview, respondents were asked be sought from the Governors of their important issues were considered, but at to sign an interview consent form (and all prisons for permission. In most cases this the same time there was sufficient scope did), noting that they agreed to talk to the meant fresh application to new prisons. for development into areas which had researcher and specifying the conditions. Once again, potential interviewees moved impacted on both the criminal actions All interviews were conducted on a one- or were released before an appointment of the individual and the environment in to-one basis, no names were recorded. could be made, and there were delays which they worked. Interviews lasted from 45 minutes to three – some interviews proved impossible hours but typically for about 90 minutes. to arrange. During the interview, questions were directed at their motivations in an attempt This was not an easy project, but it is an to understand precisely their reasons for important one and in part justified by the committing offence(s) at the point they lack of previous research. The next section did. There was a focus on the ways in explains the research process itself and which they identified any weaknesses in outlines the strategy adopted to ascertain company systems, and the tools and skills the truth from those already legally defined they needed to exploit those weaknesses. as having been dishonest. An attempt was made to understand the risk factors as they viewed them, and how they managed those risks. And importantly there was discussion about the company, their own rewards from their crimes and their perspectives as they reflected on their actions from the confines of a prison cell.

51 This may be because there are not many who qualify. the offence not being relevant. Some said that they Staff at one prison wrote to all those identified as did not want to participate because they wanted to being potentially relevant because of their index put their offending behind them. Some, especially at offence and asked them to meet the researcher at a open prison, were busy with jobs and did not want specific time. But several of those who turned up had to be distracted by research. The difficulty in getting not stolen from their employer, one was a money responses may also be due to the fact there are not launderer, another had become involved in a scam to many people in prisons who have stolen large sums defraud HM Customs and Excise. Where a reason from their employers. was given for non-involvement it usually related to

52/53 Learning From Fraudsters Did the interviewees tell the truth? The interview schedule was semi- It is possible then that interviewees The Achilles heel of work with offenders is structured, which allowed plenty of scope may have lied about some things in the that they may lie, and it is not easy to prove for exploring issues, and especially any interview. For example, if they had had whether they did or did not. As has been inconsistencies (which may indicate money from their crimes hidden away, noted, white-collar criminals “are quite deliberate lies). Sometimes it was possible would they have admitted as much, even as skilful and adept as researchers are”,52 to compare what was said in interviews to a researcher in confidence? Only one and they may withhold the truth. Some with other sources, such as what appeared interviewee was hesitant in giving answers, have argued that independent checks are in newspapers or in files that could be and that was the shortest interview and in needed, and then admit with some irony, accessed, although as noted, these are part due to his need to return to work within that the best source, such as prison records not authoritative sources for the purposes the prison, but this meant fewer areas were are themselves often associated with they were being used here. The fact that explored rather than all of them in less being inaccurate.53 respondents agreed to the interview depth. No researcher in studies of this kind voluntarily is important, and of course, can be sure that the sample has spoken Certain precautions were taken to most had admitted the offences, and the honestly on all issues, and to that extent, encourage interviewees to tell the truth. data from the two that did not admit their caution must be given about the veracity At the start of every interview the aims guilt have been treated cautiously. Two of of the findings. To help readers make their and objectives were outlined. It was made the interviewees were co-accused. Their own judgement, the interviewees have clear that the interview was confidential accounts did not tally up exactly although been quoted at length, indeed the point and that no names would be recorded. The the differences were entirely consistent of the research was to listen to their views point of this was to emphasise that there with the different roles they held within about what they say they did and how they was no need to lie. They were also advised the company, and they did agree on all the said they did it. that they were not obliged to answer any important details, which is encouraging. questions that they did not want to, and Of course they could have conferred this again took away the reason to lie – it beforehand, there is no way this can be would be easier to move on. They were ruled out. given the chance to ask any questions prior to the interview starting to clarify any misunderstandings in the hope that this would allay any disquiet if it existed.

52 Geis, G. & Meier, R.F. (1977) White-collar crime: Offences in business, politics and the professions. New York: Free press. Revised Edition. 53 Farrington, D.P. (2001) What Has Been Learned from Self-Reports About Criminal Careers and the Causes of Offending? Report to the Home Office. (www.homeoffice.gov.uk/rds/pdfs/farrington.pdf) Appendix B: ‘Inside Time’ editorial ‘Corporate World gets Tough on Fraud’

The issue of corporate fraud has Robert Wardle, Director of the SFO, is not ball rolling by launching a corporate fraud not traditionally been a subject that surprisingly delighted with the increase research project to investigate the drivers immediately grabbed headlines. Then in awareness of corporate fraud within behind corporate fraud and the lessons along came Enron, WorldCom and Barring’s the media, coupled with the recently that businesses need to learn from past – to name but a few high profile disasters – announced 50% increase in his annual fraud. Anti-fraud regulation and systems and the landscape changed. Suddenly budget. This further supports the trend that to keep fraud at bay need to be continually corporate fraud is hot news and businesses businesses are placing the issue of risk updated and evolve. The most effective are desperately implementing anti-fraud higher on their list of priorities. However, first step in this process is likely to be measures in order to meet external are businesses fully aware of the risks? through understanding the drivers behind demands to prove corporate resilience How do so many employees manage to fraud. Convicted and repented fraudsters against fraud. However, more questions circumnavigate the systems in place to themselves are invaluable in the prevention do need to be asked – how many cases protect against fraud? The greatest threats of future fraud. are not brought to light/covered up/too to a business now come from within their complicated to be investigated/dropped own walls, with internal risks often causing Corporate fraud costs the UK economy due to lack of ‘jury-friendly’ evidence? We greater damage than external ones. So how millions of pounds every year. Current and may have only seen the tip of the iceberg. do you understand this trend and therefore potential investors need to feel confident help prevent internal attacks? that the UK is doing its utmost to prevent The Serious Fraud Office (SFO), formed in fraud, and where fraud takes place lessons 1988, was designed to deal with issues Many convicted Internet hackers have found need to be learnt. Convicted fraudsters of corporate fraud and has recently themselves in great demand when leaving are the key to the learning process and announced the deeper involvement of prison as their knowledge of the vulnerable businesses should be utilising this resource the City Police with their investigations, aspects of IT systems can prove priceless. to the maximum. on top of substantial budget increases. This situation is likely to be mirrored Its percentage of successful prosecutions with corporate fraudsters. The old trick of currently sits at an impressive 70% since ‘gamekeeper turned poacher’ is effective the SFO’s formation, although 2003 only as it provides businesses with an invaluable saw a strike rate of 50%. However, the insight into the processes behind fraud, the message has most definitely been sent drivers behind it, the tell-tale signs etc. It out. The Government and its agencies can also provide convicted fraudsters with have recognised the need for further employment opportunities upon release prohibitive measures, and a deeper and a chance to give something back to understanding of the drivers behind corporate community. Currently no such fraud must be ascertained. programmes exist, but we are starting the

54/55 Learning From Fraudsters Fraudsters on Fraud: The study Perpetuity Research and Current estimates suggest that fraud will Consultancy International (PRCI) Ltd cost the British economy £14 billion in this PRCI Ltd is a spin-out company of The year alone (NCIS, 2004). Offenders exploit University of Leicester managed by opportunities in corporate structures, and Professor Martin Gill, a Professor in advances in technology facilitate some Criminology at the University. PRCI’s work frauds and make them easier to conduct is a mixture of research and consultancy in and more difficult to detect. However, the fields of crime and community safety, research has not kept apace with recent risk and security. developments and the aim of a new study is to fill the gap. It focuses on fraudsters Clients of PRCI benefit from the team’s and their views of offences, why they did excellent academic credentials, bringing it, how they did so, their attitudes to various together rigorous research methodologies risk factors and supposed impediments to their approach, coupled with a broad will provide new insights and provide range of practical experience. Recent a foundation on which to plan anti- projects undertaken by the team include: fraud policies. the causes of false alarms; the regulation of security; are security officers effective?; the As a consequence, PRCI is seeking market for stolen goods; the effectiveness individuals who have perpetrated high of CCTV; support schemes for victims of value frauds and whom may be willing to racial awareness; indiscipline in schools; participate in this research. Their names will and many more. not be recorded nor any other information which could identify them, the interview Professor Gill, who has conducted previous (about 90 minutes) will be conducted in research into fraud and money-laundering, confidence and a full explanation of the is the project supervisor. research aims will be explained to all participants. The aim is to identify good practices and to incorporate a view that is so often missed. Appendix C: Interview schedule

Thank you for agreeing to this interview. Consent form completed Issues to probe: yes/no • How long did the fraud last? I think you will be aware of the reasons • Was it a one-off fraud or a continuing for this interview, but it may be helpful Is there anything you would like to ask fraud? Did it require some action to to outline them again here. We are before I start? be taken on a regular basis in order to interested in learning about fraud from your hide it? If so, did you need to be at perspective, and so we would like to talk to Interviewer...... work on a regular basis and neglect you about your experiences and your views. taking holidays? Date ...... • How long did it take to plan the frauds The interview is entirely confidential; (how long was it from first thinking of we will not be putting your name on this Background details54 the offence to carrying it out)? schedule. It is also entirely voluntary. If Let’s start with some background details • Did you plan the fraud in advance? there is any question that you would prefer about you: • How did the idea come about? Was it not to answer, just say so and we will move • Age hatched over a long period or just evolve? on. If at any point you have any questions • Sex • Did it occur because there were some then please do not hesitate to say so. • Marital status significant weaknesses in the controls Please read the following consent form • Ever married and procedures within the company? and sign it if you are happy to proceed. • Skills and qualifications • How long did you spend committing • Last job (why left it and when?) frauds (over what time period)? • Salary on leaving • Why did you commit the fraud? • Daily paper currently read (What came first – the motivation or need to commit the fraud or the fact The offence(s) that the opportunity presented itself, I’d like to talk with you now about the or anything else?) offences for which you have been convicted. • Was there any IT involved in completing the fraud? (If so, what role did it play How many offences have you committed/ and was it necessary to breach been convicted of in your life? any procedures?) • How were you caught? How many of these were frauds? • How was the fraud discovered? By Can you tell me a little more about each Internal Audit, management or staff? of these? (If over three, just gain details • Were you aware that the fraud had been of the last three.) discovered before being accused? (If yes, did you hide or destroy any documents • Specify offence(s). We need to or remove any electronic material?) understand what type of fraud was • Was the fraud committed on your own committed (e.g. investment frauds in or with the assistance of others, internal securities, mail-order frauds, credit or external assistance/pressure? and computer fraud, insurance fraud). • What sentence was received? (Find out how long spent in prison i) total in life, I would like to discuss one in depth. ii) on current sentence.) Please identify one that you (respondent) • How did you feel whilst you were are happy to discuss, but if possible the committing the fraud? biggest fraud in terms of amount stolen.

54 For the purpose of the report presentation, the interview schedule layout has been condensed.

56/57 Learning From Fraudsters The company • Did the company have a fraud Supervision I’d like to spend some time looking at response plan? • Were you supervised in your role? the characteristics of the company you • Did the company undertake any Did anyone check what you did? were with when you committed your fraud awareness training or fraud • Were line management responsive? fraud offence(s). risk assessment? • Was there much autonomy in your role? • Was the company target-driven? Did this facilitate offences? • Type of company (financial services, (Were you under pressure to achieve • Were you good at your job? manufacturing etc.) goals and did this impact on crime?) • Size of the company (no. of • To your knowledge, had the company Promotion staff, turnover) ever been previously subjected to fraud? • What were the channels to promotion? • Your position in company (staff, • Was there anything about the company • What was the availability of promotion management, senior executive etc.) structure that made it more vulnerable in your company? • Your length of service with the company to fraud, i.e. lack of regulations, • What was the likelihood of promotion • How would you describe the culture of discipline etc. for you? the company in which you worked? • Did you have personal or professional Interviewee’s job problems that impacted on work/ Issues to probe: I’d like to discuss some issues more influenced your decision to commit • Was it committed to supporting specific to you and your job now. fraud? What were these? staff? (Did you feel marginalised, or Probe issues such as: properly supported?) Recruitment – Marital breakdown/difficulties • Was there an appraisal system at your • How were you recruited? – Substance abuse/Gambling history company? What were your views of • What, if any pre-employment checks – Financial difficulties/debt. this system? were done? • Was the job fairly rewarded? (Did you • Why did you apply for this role Summary feel unfairly rewarded for efforts?) specifically? To bring this to a close then. • Were grievances fairly dealt with? (Did • Can you summarise your reasons for you have any type of grievance with the Role committing offence? company, need to get precise details?) • Were there specific work targets for • What have been the consequences • Was the company well run/management your role? for you resulting from your offence? effective? (Were there any rule breakers • What were they? • What do you think have been the and for what sort of thing?) • How were the targets perceived? consequences for the company? • Was the company making profits? • How do you feel you were perceived • What would have stopped him/her • Was the company ethical? Did the by staff in the company? committing the offence? company have an ethics policy? • How do you feel you were perceived • Would you do it again? • Did the company have an internal audit by the management of the company? • Why not if no? Why yes if they would? function? If so, how effective do you • What was your salary? think it is? • What other benefits did you receive Thank you for assisting us in this work. from your employer? About the author

Professor Martin Gill: Director PRCI Ltd Contact Martin Gill is Director of Perpetuity Research and Consultancy International which is Professor Martin Gill a spin-out company from the University Director, Perpetuity Research & of Leicester where he is a Professor of Consultancy International (PRCI) Ltd Criminology. He has published over 100 [email protected] journal and magazine articles and 11 direct line: 0116 222 5566 books, including Commercial Robbery, mobile: 07740 284286 CCTV and Managing Security. He is currently compiling the Handbook of Security that 148 Upper New Walk will be published in 2006. He is co-editor Leicester of the Security Journal and founding editor LE1 7QA of Risk Management: an International UK Journal. Professor Gill is a Fellow of The Security Institute, a member of the Risk www.perpetuitygroup.com and Security Management Forum, the Company of Security Professionals (and therefore a Freeman of the City of London), and chairs the ASIS International Research Council. With PRCI colleagues he is currently involved with a range of projects related to different aspects of crime in organisations and private security. This includes shop theft, staff dishonesty, burglary reduction, robbery, the effectiveness of security measures, policing and violence at work, to name but a few. He has recently completed work on illicit markets, and is currently looking at clients’ views of security and the effectiveness of property marking schemes.

58/59 Learning From Fraudsters About Protiviti

Protiviti is the leading independent Our approach Contact provider of business and technology risk Our 1,800 professionals worldwide have and internal audit consulting services. deep skills and competencies and we Mike Adlem These services include our Integrity Risk assemble a customised team for each Managing Director, Protiviti UK solutions – preventing, detecting and assignment. Additionally, we have [email protected] investigating financial crime, dishonesty direct access to tens of thousands of direct line: 020 7024 7513 and unethical behaviour, and supporting highly-qualified financial professionals legal teams with litigation consulting through our parent company, Robert Half Protiviti services. All of our personnel share a International Inc. This means that all the Rex House professional commitment to helping you necessary resources – be they industry, 10 Regent Street protect and enhance enterprise value. technology, accounting/finance or forensic London – are brought to each engagement, SW1 4PE We help companies and their legal promptly and to maximum effect. advisors measure, manage and mitigate the risks they face through our locations We identify and evaluate the strengths and on five continents, and through our strong weaknesses of your position so that any relationships with government, regulatory recommended solution meets economic and law enforcement agencies in every and regulatory requirements. And because major financial centre. our team includes experts in assessing and re-engineering business processes, we help Our Integrity Risk professionals have you to identify opportunities for creating experience in over 20 different industries. greater efficiency. They come from many occupational backgrounds, including government, accounting and auditing, regulatory compliance, law enforcement, computer forensics, IT security, corporate law and technology. Many have decades of experience in forensic accounting, investigations, compliance, fraud prevention and litigation support. Protiviti is the leading provider of independent internal audit and business and technology risk consulting services. We help clients identify, measure and manage the operational and technology-related risks they face within their industries and throughout their systems and processes. And we offer a full spectrum of audit services, technologies and skills for business risk management and the continual transformation of internal audit functions.

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