Eyes wide shut
“Every single case I've worked on in
the last couple of years has been the same,” says Rosie Barnes.
“It's: 'but she was so nice...', or 'we trusted him completely…',
or 'he's been here for 20 years...'. But that's the whole point: if
you expected someone was going to commit a fraud, you'd stop it
before it happened.”
Barnes is a Senior Manager in the BDO Forensic Services team, and works with law firms and other businesses both to investigate potential frauds, and to put in place systems to guard against them.
Fraud in law firms is in fact more common than might be expected, and some well known firms have recently fallen victim to it. “In the context of a law firm it occurs in two major areas,” she says. “The first is the abuse of expenses, and the second is misuse of client money.
“Firms are particularly vulnerable to expenses fraud because of the nature of the work – many lawyers work on their own, and self-authorise their expenses or have them signed off by someone who doesn't necessarily know much about the details of what they're doing. It can be relatively easy to include personal items and other things that shouldn't be there.”
As for client money, SRA rules state that these must be kept separate from law firm funds. But a lot of money can come in through conveyancing, inheritances and so on. “There aren't always effective systems in place to monitor this money,” Barnes points out. “Sometimes sophisticated techniques are used to get it out – fabricating very good invoices, for example, which can be very hard to detect. At other times, though, it's just a question of a straight transfer. But if the people are trusted and their activities aren't monitored, they can get away with doing it.”
Often the culprits would hardly even recognise themselves as fraudsters. “They can seem to be in denial,” she says. “It can be something that's been going on for a very long period, starting small but then getting bigger as opportunities present themselves. Some will rationalise what they're doing by feeling they 'deserve' the extra money to top up their salary to a level they feel they are worth. And as trusted employees, no one is watching them too closely.
“It's also true that the more senior a member of staff, the harder it tends to be to question any aspects of their administration. Partners in law firms – like directors in other businesses – often occupy a 'special' position where the usual standards of accountability don't necessarily apply. For the tiny minority involved in fraudulent activity, this makes their life easier.”
Of course, this is not to say that firms everywhere should become hugely paranoid and distrust all their employees. “There's no need for that,” says Barnes. “Trust is important. But at the same time, there should always be some controls in place.
“A simple way of minimising the risk of expenses fraud is to ban self sign-off, and have authorisation levels for forms – either someone more senior, or not involved in the team, who will scrutinise any claims.
“Segregation of duties is good policy for client money too. There needs to be regular reconciliation of accounts by people who aren't involved with the matter in question.”
BDO's forensics team work across the board. They may be called in by a firm where there is a dawning suspicion that not everything is as it should be, and discover a major fraud is taking place. Or if matters are left too late, it's sometimes just a question of coming in to establish the quantum.
Best of all from the law firms' point of view, though, is a pre-emptive visit where systems are put in place to ensure these problems can't occur in the first place. To say 'that department seems fine, so why would we need to put in systems?' is one of the oldest – and potentially most costly – mistakes in the book.
