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Fraudsters targeting IT wholesalers to rake in millions of pounds a day

26 October 2007

IT companies are among the top targets for fraudsters stealing around £4 million a day from UK businesses.

This is the view of Shoosmiths commercial litigation partner Stuart Little, who said that this area had proved particularly vulnerable.

Speaking after a recent independent survey had revealed a 40% increase in reported business fraud in the UK last year, which took the total sum lost to around £1.37 billion, Stuart said that size was no protection for companies when it came to fraud.

He highlighted the case of an IT company which uncovered a fraud focusing on its wholesale distributors who work on volume rebates and are reimbursed after reporting sales.

“There were losses of around £1.3 million where one of its distributors were fabricating sales figures and then claiming huge financial rebates. An internal audit delivered the evidence and the company sued for breach of contract, which in this case was easier to prove than fraud.”

Stuart said they were witnessing a definite trend towards companies taking direct legal action against fraudsters after falling victim to scams including bogus invoicing and account manipulation.

“Surveys have identified a staggering increase in reported business fraud. Last year it equated to around £3.75 million a day and is probably only the tip of the iceberg, as the vast majority of business fraud is not reported to the police.

“Employee fraud is now one of the largest problems that UK businesses have to face, and the problem is escalating.”

Stuart also pointed to the recently reported case of Alfred McAlpine where it was revealed this year that forensic accountants discovered the company had been defrauded of around £23 million by a group of managers colluding to inflate results at its quarrying business in Gwynedd, North Wales.

“I advise our clients to act quickly in terms of gathering evidence. It is important not to alert the fraudster to the fact that you are on to them until you have sufficient evidence in place. As soon as the evidence is available, it is then a matter of taking a very robust approach. A direct threat of legal proceedings frequently leads to a successful outcome with some sort of recovery.”

Stuart said there was no right answer for the best tactic to recover lost funds.  Each case merited a different bespoke solution but often the civil route as opposed to a criminal prosecution resulted in a quicker recovery and allowed the client involved to have more control over the process.

He set out a key strategy for businesses to stop themselves falling victim to fraudsters, including creating an anti-fraud culture where whistle-blowers were happy to come forward.

“We advise companies to tighten internal procedures to clarify the amounts that have been claimed from them and keep electronic evidence as this will help to support any potential claims.

Stuart commented: “At the outset of fighting fraud within the business arena, companies may find that on a case by case basis they incur costs that outweigh the value of the fraud.  We believe however, that what you are really investing in is the message to fraudsters and potential fraudsters, that fraud of any level will not be accepted.  If an IT wholesaler has a reputation for zero tolerance, it is likely to deter the opportunistic fraudster.”

The independent survey in reported fraud was carried out by accountants BDO Stoy Hayward.


Ends

For further information please contact:
Name: Karen Carter
Phone: 08700 864086
Email: karen.carter@shoosmiths.co.uk