Her Majesty’s Revenue and Customs (HMRC) is giving an out to any taxpayers who are suspected of tax fraud. The new initiative will allow them to avoid criminal investigations, as long as they admit to their actions.

David Gauke, the Exchequer Secretary to the Treasury, explained: “This new facility is a valuable tool which will help HMRC in its fight against fraud.

“HMRC will set out clearly what is expected of taxpayers, and what will happen to fraudsters who choose not to disclose their crimes.”

The initiative is known as the new Contractual Disclosure Facility, and it will see the HMRC contacting a taxpayer to inform them that they are suspected of serious tax fraud.

HMRC Cracks Down on Tax Fraud

The tax payer is then offered the opportunity to enter a contract in which they are given 60 days to disclose the fraud under the guarantee that they will not be criminally investigated during that time.

Instead a civil investigation will take place to resolve the outstanding tax and interest payments, and financial penalties may apply. Failure to sign the contract, or breaking the contract once signed, will lead to a criminal investigation and potential prosecution. Taxpayers who are not under investigation but want to admit to fraud will not be able to apply the new ruling.

Speaking for The Chartered Institute of Taxation (CIOT), Gary Ashford welcomed the plans. He said: “This is a positive development. HMRC’s proposals would potentially provide greater clarity to those who have deliberately got their tax wrong and now want to engage with the taxman to regularise their affairs.”

However, we question whether there is anything new in this – it appears to be a further refinement of the ‘Hansard Procedure’ which, in various guises, has been in existence for decades but now being aimed at a wider cross-section of taxpayers.

Apart from the question as to whether HMRC has the resources to take on more criminal work, we also question how HMRC’s proposals will work in practice. This is because, in any other instances where criminal activity is suspected, the defendant at the very least is entitled broadly to know what they are accused of.

HMRC’s approach is akin to a person receiving a letter from the police telling them that they are suspected of criminal activity and, without providing any specifics, giving them 60 days in which to confess or run the risk of going to prison.

Unless carefully vetted, the system could be open to abuse. If you need advice on tax fraud issues, contact Forensic Accounting Services today.

We wrote earlier in this blog about Ponzi schemes and Bernie Madoff in March 2009, the former non-executive chairman of the NASDAQ stock market, pleaded guilty to 11 federal offences related to a massive Ponzi scheme which left investors defrauded of billions of dollars.

A Ponzi scheme is defined as a fraudulent investment operation that pays returns to its investors from their own money, or the money paid by subsequent investors.

Bernie Madoff Portrayed as the Joker by New York

Such underhand dealings are complicated to create, and very difficult to trace once they have been put into action. That is why teams of forensic accountants have now been employed to look into where the missing money is, thought to be as much as $50 billion. Among the high profile clients who lost money with Madoff is reported to be the former actress Zsa Zsa Gabor who had invested around $10 million with his firm.

To investigate properly the forensic accountants will need to sift through a hundreds of records held on both computer and paper. Financial experts have stated that they would not be surprised if Madoff’s missing billions are in other countries by now, as he was often travelling and doing business abroad.

Yet not all Ponzi schemes are on such a huge scale and investigators have warned about such a surge in pyramid schemes that the perpetrators are now being referred to as ‘mini Madoff’s’.

If you think you have been a victim of fraud, no matter how small or large, contact Forensic Accounting Services today for a free consultation on how we can help.

RBS’ then CEO, Fred Goodwin – ‘Fred the Shred’, as he is now known – supplied us with an Icarus story for the modern age – a man who wanted to fly high and fast but who instead burned and crashed in spectacular fashion.

He had enjoyed early successes in his initial years at RBS which made the Scottish bank the world’s largest company in terms of its assets of £1.9 trillion.

Fred Goodwin Former RBS CEO

However, in the continued pursuit of glory, he initiated an aggressive takeover of the Dutch bank ABN AMRO, which was one of the world’s largest financial institutions at the time.

Any business acquisition, however small, should require some form of financial due diligence so, in a deal such as the one involving ABN AMRO, one would have expected there to be a huge amount poring over the financial records and accounts to check whether the investment was as good as it appeared to be.

But, instead, Goodwin allegedly claimed that ABN’s reputable status meant that RBS would only be undertaking a “due diligence light”. After all, at the time, the banking world was enjoying an unprecedented boom, symbolised by the huge salaries that men like Goodwin drew for their role (and his eventual £16 million pension pot).

But, in truth, the first stages of the downturn had already started and ABN had a large exposure of toxic debt in the US sub-prime mortgage crisis. Many say that, with Goodwin’s background as a chartered accountant, the failure to undertake a proper due diligence was an inexcusable oversight. Soon, RBS suffered a liquidity crisis and, in October 2008, it was forced to rely on a Government rescue package.

The moral of the story? All that glitters is not gold. Why let the prospect of an apparently great deal overshadow plain commonsense and financial prudence. Don’t put your livelihood and business success down to chance. Employ a forensic accounting specialist to carry out full and proper due diligence before making substantial business investment decisions.

Although this year’s council fraud detection rate is up one third on last year (fraud figures for 2009/10 were £135 million), the figures suggest that there are still many stones left unturned.

And the money matters because this level of loss is equivalent to the salaries of more than 10,000 care workers, pointing to a greater loss of total revenue than the figure alone suggests.

Council Fraud Is Costing The UK Money

The Audit Commission alone picked up on over 120,000 scams, such as fraudulently claiming council housing and other illegal benefit claims. Fraud can even include people subletting council houses when the terms of their contract prevent them from doing so.

There are also cases of fraudsters stealing payments that are meant for the most vulnerable members of society such as the elderly, who will be severely impacted by the lost income. Furthermore, temporary housing for the homeless was affected by these cheaters and that accounts for some £1 billion of the government’s annual spend.

This sorry state of affairs has prompted local councils to turn to forensic accountants for help, including Bristol Council, who recently been looking at using forensic accountants. Amongst the Council’s current workload is the targeting of unlawful applications for student discounts which total a staggering £1.9 million.

Forensic accountants are helping councils and other agencies ensure that the precious funds which are available reach those who are properly entitled to them.

The 2010 Report to the Nations on Occupational Fraud and Abuse has said that on average organisations lose 5% of their annual revenues to fraud, and that fraud usually goes undetected for at least one and a half years.

Therefore organisations need to be aware of the warning signs at every level. Frauds committed at an executive level cost three times as much as those at a managerial level, and nine times as much as frauds committed at an employee level.

Employee Fraud Costs Businesses

The report warns to look out for signs such as shrinking inventories with funds being skimmed off before they ever even get into the books.

Stopping this fraud can be as simple as taking an inventory analysis, comparing cash receipts with bank records, or by using more complicated measures such as gross profit analysis. If you need to look into complex fraud on a large organisational level then it is possible to run data analysis using special software.

If the computer data analysis is not employed that it can be as simple as following a paper trail. Cheques should all be checked for forgeries and for cheques made out to unrecognized parties. If any documentation is missing then this should also flag up a warning.

Similarly high levels of overtime, or changes in employee expenses, which are not backed up by the payroll figures should send alarm bells ringing.

If you need help detecting employee fraud, contact our Forensic Accounting Services team on 01454 203 778. We have decades of experience in identifying the fluctuations which could mean that you have become victim of fraud.

Gribkowsky is on trial for allegedly receiving a bribe from Ecclestone to facilitate the sale of Formula One to CVC Capital Partners in 2006.

But Ecclestone insists that he made a payment from his family trust to Gribkowsky in order to avoid an unfavourable ruling from the UK tax authorities.

Bernie Ecclestone is Facing a Tax Investigation

Gribkowsky had received the payment after suggesting that Ecclestone might have to pay a huge tax on the family trust, which is known as Bambino. Ecclestone denies that this payment was a bribe, but instead constituted a payment to prevent false accusations of tax evasion.

Ecclestone said: “Paying £8m is cheap compared to what it could have been – £2bn, or more. The money was paid because if the HMRC thought that I was running the trust, then they could have made me pay.”

Ecclestone is facing a separate civil claim over the payment as well as an investigation into the $41.4m commission paid to him by BayernLB bank.

Sven Thomas, lawyer to Bernie Ecclestone, claims that his 200-page legal submission will make it clear that the payment by Ecclestone was not a bribe.

“You could say Bernie has been the victim here. There was a hidden threat, a pressure – a sort of shakedown. Bernie’s Trust Bambino wanted to ensure Bernie would continue as CEO because they believed, if he didn’t, the value of their assets would come down. That is why separately they also paid Mr Gribkowsky.”

Admittedly the internet is limited in what information it can provide but there are some obvious flight checks to be undertaken before taking the plunge in terms of any business investment.

This applies to a broad spectrum. Some friends recently decided to have a bit of fun by opening a Full Tilt poker account. The company was guaranteeing to match whatever stake they put up so they added £100 and it was doubled to £200. However Full Tilt is currently at the centre of a Federal investigation amid claims that it has operated a huge Ponzi scheme with investor’s money. A cursory internet search could have revealed this to the unfortunate party, who assumed that as it was a globally recognized company it must be trustworthy.

Preventing Fraud- Online Advice

With that in mind here are five steps to protect you against fraud.

1) Use Companies House – This is basic but important – check that the company is real by doing a search on www.companieshouse.gov.uk/ .

2) Check the Financial statements – All registered companies must file financial statements with Companies House and these are part of the public record so you can check if they are in good health.

3) Do a general internet search – if other people have been scammed by an organisation then they are likely to report it on the internet, so do a quick search to see if anything has been reported about the organisation.

4) Follow the Conversation on Twitter – Search for the hashtag #fraudweek on Twitter for real time updates and information about Fraud Week. That allows you to get involved with your thoughts and
questions and find quick answers to your problems.

5) Set up a Google Alert – If you are not sure about a company, visit the Google Alerts tab. This can prompt Google to send all new info about a business to you as soon as it is released.
At the tabs at the top of Gmail select ‘more’ on the far right, and then select ‘even more’ at the bottom of the drop down menu. Alerts will then be the first option you see and the rest is self explanatory.

If you are worried about any type of fraud, whether online or offline, contact Forensic Accounting Services to see if we can help on 01454 203 778.

We refer to them as ‘the three Cs’ – Cash, Capacity and Customers.

The term ‘cash is king’ is frequently heard in business circles and it is justifiably so. Cash is the oil that prevents the business machine from seizing up and cash flow is a fundamental facet of any business. Sometimes even successful businesses – on paper at least – fail due to overtrading because they are unable to generate enough positive cash flows to maintain momentum.

How to Keep Your Cash Flowing

So, when preparing or reviewing business plans or insurance claims, one of the first issues we raise is ‘how does or will the business create cash?’

The second C is Capacity – does the business have the day-to-day capacity to maintain current levels of production or meet planned increases in production? Quite often we see instances where business plans are focused solely on increasing sales but they forget that increased sales create increased business activity and that increased activity creates increased costs, which sometimes mean having to find larger premises, more staff, and higher overheads. In these instances, a detailed understanding of the effects of changes in activity on what are known as variable and fixed operating costs is required, but this is often overlooked.

Take the case, for instance, of the sole trader who created unique pieces of art from jetsam. His business had been very successful but that all changed on the day he seriously injured his hand and he was unable to work again in this specialist area. His insurance claim for loss of income was substantial, based on the assumption that he would have been able to continue making sales and meet ever-increasing demand for his products.

Unfortunately, on reviewing his claim, it was discovered that, in the period leading up to his accident, he had been working very long days which had caused him to become tired and had been a cause of his accident. Thus, it was apparent that he was already working at full capacity. Part of his claim failed because he could not overcome the issue of how he would have been able either to increase the length of his typical work day, or obtain an equally gifted associate, in order to meet anticipated demand.

Demand leads us to the third C – Customers, without whom there would be no demand and no business. Again, a detailed understanding of the product or service, and competition, is required if one is to successfully create a business plan or support an insurance claim that is based on demand for it. One is reminded that, on occasions, products have been created as solutions for problems that do not exist, so it is important to understand how one would attract new customers and then retain them.

Speaking at the Scottish Financial Crime Group Conference, Kenneth Murray, head of forensic accounting for the Scottish Crime and Drug Enforcement Agency, said that scammers were increasingly using pre-paid cards to transfer untraceable cash.

Mr Murray said that the boom in pre paid cards obviously had benefits for the consumer, but had also attracted the attention of organised gangs. In particular he specified that gift cards such as iTunes certificates were good ways of smuggling money which are not obviously detectable.

Forensic accountants are investigating fraudulent use of gift cards

He said: “In the olden days if you were a criminal you might hold up a bank and would need a getaway car. Pre-paid cards are the modern getaway car.

“You can top the cards up with a mobile phone or on the internet. It’s a relatively simple way of transferring cash which is difficult to trace. Clearly these are characteristics of advantage to money launderers.”

“In the next five years pre-paid cards are going to become a much more common way of handling personal finances. And it is not just at the lower end. American Express is looking at this currently.”

Indeed only last year five men were convicted of using iTunes music vouchers to launder money in an internet scam. By using stolen cards they were able to sell on three quarters of a million pounds worth of vouchers on eBay. They were only caught during a search and seizure operation in Hull which revealed stolen bank cards that had been used fraudulently to purchase iTunes gift certificates.

Mr Murray added: “We are aware that these cards are already being used by organised crime groups. Banks and other businesses have to look at how to protect against abuse. We also need to work together to ensure that suspicious activities are reported.”

Business plans are important for any new or existing business because they help focus owners’ and managers’ thoughts on the key factors that will affect income, costs and, ultimately, profit over the next trading period, and beyond.

The plans themselves can be as basic or as complicated as one requires. Indeed, overcomplicated plans with numerous variables may look impressive but can become incomprehensible when trying to ascertain what key factors are likely to affect the business going forward.

I met a former colleague recently who told me that he was taking his career in a completely different direction, and had decided to sell used cars. He had already identified suitable premises and had attended a few auctions to see the types of vehicles he might be interested in buying and selling, and the typical costs involved.

Dragon's Den

Out of interest, I asked him whether he had made a business plan or estimated what level of funding he might require. He hadn’t. He had saved £10,000 and decided that this substantial amount of money would be adequate for his purposes.

I asked him what was the average cost of the vehicles he was looking to sell, and how many vehicles he intended to have on his forecourt. He thought the average cost would be around £2,000 and he envisaged having around 10 vehicles to provide a variety of interest. This, I pointed out, would mean that he would have to find at least £20,000 just to provide his new business with some opening stock, and he would require even more just to cover his initial start-up costs and day-to-day running expenses. He added that he was aiming to make around £500 margin on each vehicle he sold, so I asked him to ‘do the math’ (as the marketing people refer to it) – calculate how many vehicles he would have to sell at £500 margin in his first, and every, year to cover his expenses and make a profit. His mouth became an upturned U as he realised how many vehicles he would have to sell every week just to cover his operating expenses, and how many more he would have to sell to make a profit which would support his and his family’s lifestyle. He went away to re-think his plans.

I wasn’t trying to be clever here, or to intentionally depress the man, but it became clear from even the most basic business plan that we managed to construct whilst standing outside W H Smith one Saturday morning that he needed to do some more research before risking his £10,000 savings on a ‘career change’.

Visitors to the Dragons’ Den, or any budding new business people, may well heed this salutary tale.