Fighting the fraudsters
The
National Fraud Authority estimates that fraud costs the UK more than
£30bn per annum. It’s a shocking figure, and shows that the
current system for preventing fraud and recovering its proceeds
doesn’t work anywhere near as well as it might.
“There are simply too many agencies targeting the same pie,” says Brandon Barnes, Forensic Accounting Director at BDO. “These include the SFO, the FSA, the OFT, HMRC, the Fraud Prosecution Service (CPS), the Department of Work and Pensions, the NHS Counter Fraud Service and the City of London Police.
He continues: “They all operate under different statutory frameworks, and they have markedly differing methods and levels of competence in investigating and prosecuting fraud – there are any number of examples that could be given here, but an obvious one is the recent failure of the OFT prosecution of four BA executives accused of price fixing.”
It has been clear for a long while that something needs to change – and now it looks as if this might finally happen. Brandon explains: “The government are planning to create a new organisation called the Economic Crime Agency: it will act as a single body dealing with fraud, corruption and financial market crime. This is definitely good news.”
In theory, at least. Getting the new agency up and running smoothly will be a major challenge in practical terms. While the relationship between the DoJ and SEC in the US is a shining example of how success can be achieved in this area, experience shows that embedding different organisations in this way is not a straightforward prospect – the creation of HMRC was fraught with difficulties, and while SOCA was launched with much fanfare it is already to be replaced by the National Crime Agency. There is no reason to believe that the ECA will not face similar problems.
“The organisations all have different cultures and pay scales,” says Brandon, “and the FSA is not even a public body. You can imagine how hard it will be to impose a shared mindset on the different parts so they can work together as a single public sector organisation. Leadership is critical: whoever is put in charge will have to bring the disparate parts together swiftly and effectively.
“The funding is also an issue, given the cuts in government spending we are seeing everywhere. The FSA in turn is funded by a levy on the financial services sector, and it’s not yet clear if this will continue if it is subsumed by the ECA. While we can look forward to some big efficiency savings, there will still undoubtedly be job losses, and this could mean fewer investigators and prosecutors out in field.”
The funding arrangements or structure of the proposed ECA are by no means clear, though. In a Lord’s written answer on 23 June Lord Sassoon confirms that “no decisions have been taken on the agency’s structure”, nor is a specific launch date yet known.
So what are the consequences likely to be for professional services firms? “The ECA will be under a lot of pressure to prove itself quickly,” Brandon predicts. “It needs to avoid being branded a failure, so I think it’s highly likely we’ll see at least a short term increase in prosecutions and civil recovery settlements, to generate both positive publicity and some revenue. Lawyers will see an increase in defence regulatory work, and at BDO we’re expecting more demand for support from our forensic and expert witness teams.
"We'll be performing more fraud and tax investigations. Among other things, these will include quantification and analysis of prosecution claims, as well as internal investigations for companies prior to self reporting. We'll also give expert evidence on accounting procedures, and of course advise firms on the adequacy of their bribery and corruption prevention controls to stop them getting into trouble in the first place."
The specialist law firms who have traditionally carried out work in this area are likely to see more competition as larger firms see the opportunity and step into the market. It will be interesting to see how well forward-thinking firms reposition themselves to take advantage of the new framework – but ultimately, the real question is how successfully that enormous figure of £30bn can be reduced.
