Tag Archive | "fraud"

Beware tax credit email scam, cautions HM Revenue & Customs

Credulous Brits are once more in danger of getting scammed out of their tax credits this year thanks to a new crop of email fraudsters, HMRC has cautioned.

Scammers absolutely love the time of year between April and July, as the number of clueless Brits that fall into their trap absolutely blossom thanks to the taxman issuing tax credits. In fact, around 22,000 instances of fraudsters attempting to trick people into giving over their personal details such as card numbers and passwords were reported to HMRC in 2012 alone – and that doesn’t take into account the countless other attempts that went unreported!

Now we’re deep in that same tax credit season this year, and as a result the tax authority has issued strong cautions to anyone who will listen in an attempt to save Brits the heartache of having their personal information mined by identity thieves and their hard-earned cash siphoned away because of a email phishing scam. HMRC made sure to announce quite publicly and loudly that it would never contact someone by email in order to update their records, and that you should never trust anyone who does contact you via email and requests payment information or personal details.

Scammers are getting more and more ingenious and nefarious every year as well, and in fact many phishing emails will include a link that redirects a hapless victim to a website that looks remarkably like a legitimate HMRC web page. However, it’s undeniably a trap: once you input your personal details, these identity thieves are off and running with your information, allowing them to raid your bank accounts and to take out credit cards in your name, running up massive debts that could ravage your credit history until you get the whole matter sorted – and for anyone who’s gone through the process, it’s an absolute nightmare!

This makes it all the more important to not just believe everything you read as it arrives in your inbox. For what it’s worth, you need to adopt a rather paranoid approach and simply keep in mind that any official correspondence from a major government office such as HMRC would invariably arrive through the post in order to avoid any confusion.

In other words, don’t ever believe anything you read over the Internet unless you can verify its source. There are far too many people out there that are convinced the easiest way to get by is to separate a fool from his money, so don’t make yourself a target to these types of criminals and fraudsters – you’re much smarter than that!

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Conman given 17 years in prison for tax fraud

One conman was recently given a 17 year long prison sentence after being found guilty of fooling the taxman of £34 million over the course of six years.

A massive endeavour orchestrated by Thomas Scragg, a native of Hockley Heath, and assisted by auditors, accountants, and other co-conspirators, the conman found a way to siphon off stolen PAYE contributions through Mona Payroll, a business owned by Scragg and tasked with managing the staff wages of several companies operating in the construction sector.

Along with a pair of brothers that acted as henchmen, Anthony and Carl Johnson, the scheme permitted Scragg to live an opulent lifestyle, spending his ill-gotten gains on hotel stays, lavish meals, and bullet-proof windows on luxury cars such as Porsches, Ferraris, and Lamborghinis. The police were finally tipped off by neighbours of the two brothers – who offered their protection services to Scragg for £2.4 million – after their opulent lifestyle raised suspicions, with an investigation into all three finding them guilty of money laundering after a trial at Birmingham Crown Court.

There are ten additional men facing convictions for their involvement in Scragg’s scheme. Charges range from money laundering, conspiracy to pervert the course of justice, and conspiracy to defraud Her Majesty’s Revenue & Customs.

While the Johnson brothers are set to be sentenced later this year at a forthcoming hearing, Scragg has already been languishing in prison since November of 2010. His 13 year sentence was recently extended by four additional years due to the severity of his crimes.

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Utilising film finance loophole leads to bankers’ arrest

HMRC recently arrested around 16 people, including some City bankers, suspected of participating in a tax evasion.

The fraud exploited a loophole in film finance schemes but the Revenue declined to divulge the details behind it.

Among those arrested were four employees from the investment banking arm of the Royal Bank of Scotland and staff from Marex Spectron, a commodities broker, and US bank Jefferies. However, the arrests were in connection with the activities of the individuals and do not reflect on their employers.

John Cassidy, a PKF tax investigations partner, said they thought the arrested men might have been over-inflating the film finance relief. For HMRC to take the trouble to raid the men’s homes and order the arrests suggests that this was a deliberate fraud. Normally the Revenue carries out very few raids as they both time consuming and labour intensive exercises. It normally finds better ways of dealing with loopholes.

HMRC has been cracking down on high earners recently to make sure they pay their fair share of taxes to reduce the fiscal deficit.

Last November, a first tier tribunal decided that two film partnerships had not been set up as commercial operations and therefore they were not allowed to claim sideways loss relief. This suggested that a popular tax avoidance strategy was being closed down.

Sir Alex Ferguson, the manager of Manchester United, is one of several high profile figures who have used film partnerships as a means of offsetting tax losses.

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Are accountants unearthing more fraud?

According to recently published data from KPMG, total fraud in the UK reached an all time high of £3.5 billion last year.

In the final six months of 2011, around £2.5 billion worth of fraud was unearthed. Included in that total were five cases of fraud, worth in excess of £50 million each, which have since come to court.

Forensic partner Hitesh Patel from KPMG said economic uncertainty had fuelled the increase in fraud. Government agencies and businesses have been rooting out more cases of fraud through operational changes and austerity measures, but the economic downturn has added financial pressure on employees and acted as a catalyst towards more fraud.

The public sector suffered from 68 fraud cases valued at £1.09 billion, whilst financial companies had fewer cases at 59, but these were worth £1.52 billion. Of the latter, professional criminals committed the majority of the fraud, but customers and company insiders also contributed to the numbers, KPMG discovered.

In fact KPMG found that professional criminals were responsible for a total of 98 cases of fraud worth a total of £1.4 billion. Many of these were committed online, such as phishing attacks and bank fraud.

57 cases of fraud, totalling £729 million, were committed by management, an increase of 74% from 2010. In one case, a hedge fund owner was accused on over-inflating assets after some fraudulent transactions collapsed.

Patel stressed that organisations must make sure they have robust fraud prevention mechanisms in place so that they do not lose the money they have worked so hard to make.

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£161 million VAT fraud leads Welsh sisters directly to jail

Two Welsh sisters were recently jailed for three and a half years after attempting to defraud HMRC out of £161 million.

The Colwyn Bay women funded lavish lifestyles by making false claims to the Revenue, including a VAT repayment scam.

The women were arrested in January 2009 after HMRC launched an investigation into the recruitment business the sisters claimed to run. In fact, they had set up fictional limited companies, which they then registered for VAT purposes, simply as a means of reclaiming VAT.

In addition to the fraudulent VAT claims, the sisters received tax credits worth £120,000 over a period of 5 years. However, Revenue investigators discovered that although Roberta Vaughan Owen claimed to be self-employed, she had also been receiving incapacity benefit since 2002.

The other sister, Andrea, attempted to get bridging loans worth £751,000 by claiming she earned between £18,000 and £22,000 a month and both of the women attempted to defraud insurance companies. Their final fraudulent act came in December 2008 when they attempted to reclaim the £161 million in VAT from HMRC.

The assistant director of HMRC, Simon De Kayne, said the sisters funded their lifestyle by spinning a complex web of deceit and fraud. They carried out a variety of criminal acts culminating in the £161 million VAT scam. However, the Revenue intends to show them that crime does not pay and will take steps to relieve them of their ill-gotten gains.

He went on to explain that HMRC scrutinises claims very thoroughly and since the department implemented a new error and fraud strategy, it has stopped tax credit payments worth more than £1 billion.

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BDO says average single business fraud is £4.5 million

BDO’s six monthly Fraud Track update shows an increase in the number of business fraud cases that were reported.

The report for the six months to the end of May 2011 also showed a year-on-year decrease in the value of fraud from more than £1 billion to £920 million. There was also a significant drop in the value of an average single fraud, down £1.5 million to £4.5 million.

However, there were 205 reported cases of fraud in the six month period, the highest number since the inception of the report.

Simon Bevan, BDO’s head of fraud services, said the insurance and finance sectors could be dealing with fraud through civil means rather than criminal prosecutions. He believes the financial services sector could be reluctant to report fraud and 90% of fraud is never reported. A lot of those who do report fraud question whether the police or the Serious Fraud Office are the best people to deal with it.

Whilst the value of reported fraud in the insurance and finance sectors has nearly halved, public sector fraud has almost doubled since this time last year.

The report also showed that only 2 cases of procurement fraud where reported to the police in the last six months, even though this is the most common type of fraud. Bevan pointed out that two-thirds of all the investigations he has conducted over the last twenty years have involved procurement fraud.

85% of buyers think they should be doing more to combat the problem of procurement fraud, according to a SM100 poll earlier this year.

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Register for VAT and settle up while the fines are low

Contractor accountants may want to encourage their clients to register for VAT if they are eligible to pay it and have not already done so.

HMRC recently launched a new campaign to persuade firms that trade above the £73,000 turnover threshold to get their house in order. Businesses that take up the offer will receive softer late payment penalties, whilst those that do not will face substantial penalties and possible criminal prosecution.

The Revenue is to send out at least 40,000 letters to companies telling them how they can register and settle up outstanding liabilities. Firms have until the end of September to make a full disclosure and the majority of them will receive the low penalty rate of 10% on their overdue VAT payment. Furthermore, they will be given the opportunity to disclose other tax arrears in return for a lower than normal penalty.

Once this amnesty had ended, HMRC will begin investigating any firms that have not made a voluntary disclosure. The Revenue has received £500 million already from voluntary disclosures made during three similar campaigns.

HMRC’s Mike Wells, has urged people to come forward and take advantage of the best possible terms. The outstanding VAT, plus any penalties, needs to be paid no later than December 31st.

HMRC has also warned taxpayers that they will not get away with defrauding the tax system. The department’s assistant director of criminal investigation, Martin Brown, said HMRC is cracking down on fraud and has received additional money from the government to help fight tax avoidance and tax evasion.

He made his comments after a “self-styled Lord”, Gregory Roberts, admitted attempting to defraud the Revenue of £3.5 million from falsified documents.

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Is your 40 year old finance manager a typical fraudster?

Recent research by KPMG discovered that the typical white collar fraud is carried out by senior male finance staff, and that it takes longer to detect.

KPMG based its findings on 348 real fraud investigations, across 69 countries, conducted by its member firms.

Most likely to participate in fraud are men in the 36 to 45 age group holding senior management roles in finance. This group accounted for 41% of cases, whilst the number of frauds committed by members of the board has increased to 18% from 11% in 2007.

90% of frauds are targeted against the perpetrator’s employer and 33% of the fraudsters will have been at the company for longer than 10 years. 61% work in collusion with another fraudster, almost double the 32% of collaborators in 2007.

The main motive for fraud is personal gain, followed by pressures to meet budget and profit targets. The survey also noted that 74% of fraud cases exploited weak internal controls.

The head of KPMG’s investigations network in Europe, Middle East and Africa, Richard Powell, said that a lot of the frauds he has investigated in the last few years have been detected via whistle blowing reports. Very few are discovered by management or auditors.

In 2007, it took an average 2.9 years to detect a fraud, now it takes 3.4 years. Companies also fail to act when they see warning signs, the report said. In 2011, 56% of cases were preceded by a red flag, compared to 45% in 2007. Only 6% of these red flag cases are acted upon immediately, compared to almost one in four of the 2007 cases.

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HMRC to improve relations with tax agents

HMRC intends to improve its relations with the tax agent community, a move which could bring benefits to contractor accountants.

The department has drawn up a list of proposals which include understanding the tax system from the perspective of an agent and providing additional security against fraud by enrolling agents on a database.

HMRC spokesman, Brian Radford, pointed out that tax agents had a vital role to play in delivering the tax system and the Revenue would be unable to function without them. HMRC wants to improve its service to take account of the changing needs of its customers and make administration more consistent and efficient.

He concluded by saying the department had been working closely with agent representative bodies because they also want to help taxpayers meet their tax obligations effectively and efficiently.

The Chartered Institute of Taxation has welcomed the move. The president of the Institute, Anthony Thomas, said agents are likely to welcome the proposed self-serve facility so that they can access some of HMRC’s system. Agents get frustrated at the time wasted waiting for the Revenue to do its job, correcting errors and routinely chasing progress. If the self-serve facility is implemented effectively, it could save agents, HMRC and taxpayers both time and money.

Thomas did express concerns that the database enrolment should be overseen by an independent body and the system must not become bogged down with excessive bureaucracy. It’s important to remember that tax advisers are agents to their clients and not the Revenue.

HMRC’s proposals are now at the consultation stage and the Revenue intends to run a series of meetings and workshops with agents to find out their views.

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Fiddled expenses cost the UK more than £1.3bn in 2010

It’s not only MPS who falsify their expenses if the latest report from GlobalExpense is to be believed.

The Employee Expenses Benchmark Report 2011 claims that over-inflated and fraudulent claims cost UK companies over £1.3 billion last year. Almost £1,000 million of that was made up of claims that were outside company policy, the report states.

Some of the questionable claims included school fees of more than £4,000, over £58,000 for entertaining clients and a sundry expense of £26,000 for a holiday in Las Vegas. Other highly suspect claims included £1,200 spent on lap dancers and the hire of a porn film whilst in a hotel.

Expense-claiming employees in the UK made an average 33 claims last year with an average claim of £62.08. The report also discovered that the largest amount paid out to a single employee was £333,000. Spending on entertainment was the only category that increased over the past year with financial services employees being the highest spenders.

Although managers enforced tougher compliance rules on their employees, their out-of-policy spend increased in 2010. Managers were 30% more likely to make non-compliant claims than their employees.

Nigel Meyer from the Hogg Robinson Group suggests that data management could help companies cut down on their travel expenses bill. He pointed out that business travellers often amend their bookings, with changes made to connections and interchanges. In order to set an efficient travel budget, all the data should be collated, consolidated and analysed, he advised.

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VAT increase will be detrimental to the wealth of SMEs

VAT rose to 20% on Tuesday and over 70% of small firms think this will impact negatively on their business.

The FSB conducted a survey of its members and 71% of the 1,600 respondents said the increase will not be beneficial to their business. 52% said they would have to increase prices, 45% expect turnover to decrease and 36% believe the rise will result in a loss of customers.

George Osborne says the increase is here to stay but the FSB is urging him to return VAT to 17.5% once the fiscal deficit has been reduced significantly.

SMEs will be hardest hit by the VAT increase as they are unable to absorb it in the way larger organisations can. The majority of small businesses will have to pass on the full rise to their customers, reduce their level of stocks or look to implement alternate cost saving measures.

The Federation has also called on the coalition to raise the threshold at which firms start to pay VAT to £90,000 from the current £70,000 rate. It says this move would help SMEs and could generate up to 35,000 additional jobs.

The chancellor has defended the rise, saying it shows the government is determined to tackle the budget deficit and this should lead to increased employment. Ed Milliband, on the other hand, believes the increase will cost 250,000 jobs.

Meanwhile, Jason Collins, a partner at law firm McGrigors, has warned that carousel fraud may make a comeback due to the VAT increase.

Carousel fraud occurs when a business purchases VAT-free products from one country, sells them on in a different country and then vanishes before settling the VAT liability. This type of fraud had died down in the UK but Collins warns that the increase could see VAT fraud doubling to £4bn this year.

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Online accountants should be wary of negligence claims

Professional advisers, including online accountants, have witnessed a massive rise in the number of negligence claims filed against them since the start of the recession.

Research by Syscap showed a rise of 125% in the number of High Court negligence cases launched between 2008 and 2009. In 2008, for example, there were 80 high court negligence claims against law firms. By 2009, the number had leapt to 210.

No claims were brought against accountants in either 2007 or 2008 according to law firm Reynolds Porter Chamberlain. However, last year accountants faced 13 large High Court negligence suits including claims that auditors failed to spot a fraud or negligently overvalued company assets. Deloitte Touché and PwC were among the well known accountancy firms cited for negligence in 2009.

Claims against professional advisers have now reached the highest level for 11 years and as a direct result, some professional firms are having to borrow money to pay increased professional indemnity insurance rates. PI insurance is a compulsory requirement for lawyers and accountants and it pays for the cost of defending negligence claims and for damages.

Syscap also claims that the steep increase has been triggered by lenders and investors trying to recover falling asset values by suing their advisers. They hope to win damages from the professional advisers they claim gave negligent advice regarding transactions that involved those assets.

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Lax audits could lead to an increase in company fraud

Contractor accountants may be interested in the warning from the CEO of BDO Global, Jeremy Newman. He has cautioned that auditors may be cutting corners because of increased competition and cost pressures.

In his blog, Newman pointed out that extreme pressure to reduce costs could encourage auditors to cut corners and less stringent audits have the potential to lead to more fraud.

He says that whilst there has been a drop in demand for audit services, this should be offset by changing accounting standards, additional regulation and high quality audits.

Recruitment levels have fallen by more than the demand for audit services and the economic law of supply and demand should have led to a price increase and yet that has not happened and costs are decreasing.

The potential for an increase in company fraud should cause concern as research, also from BDO, reveals that the value of fraud in the first half of 2010 has risen to more than £1bn.

The head of BDO’s fraud services, Simon Bevan, said that during the recession there was a rise in the number of managers setting up companies within companies and diverting lucrative contracts to third parties. Insider dealing also rose.

Internal management originates 16% of reported fraud whilst another 17% is instigated by suppliers and third party customers. The finance and insurance sectors are the worst offenders with almost 50% of all fraud cases being committed by those 2 industries.

In the past year the average fraud has risen by almost £1m to £6m. Bevan said that fraud is now as prevalent as it has ever been and companies need to be even more vigilant during recessionary times.

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Companies should be more wary of fraud

Internal fraud can be a problem for companies and businesses are being advised to carry out random checks on their employees to find out whether they have financial problems that could lead them into temptation.

Small businesses, such as contractor accountants, could be particularly vulnerable as they don’t have strict vetting procedures in place when hiring staff.

There was a 45% increase in internal fraud in 2009 according to the CIFAS. Theft of cash and fraudulently withdrawing money from customer accounts were amongst the crimes reported.

Neil Munroe, from Equifax, said that businesses should be proactive in terms of tracking where things are going.

Another type of fraud that has recently been uncovered cost a recruitment agency £50,000. Individuals purporting to be from a food processing company contacted the recruiter with details of a contract vacancy in Thailand. A suitable candidate responded and was offered the position.

However, the candidate and the individuals claiming to be from the food processing company were actually in league together. By the time the agency discovered the scam they had already paid the IT contractor.

Fraudsters can carry out this kind of fraud because recruitment agencies check out the company they are doing business with rather than specific individuals. As contractors can be paid up to £1,000 a day, victims of these frauds can suffer a significant loss of money.

To avoid becoming a victim, Marilyn Davidson from APSCo advises recruiters to double check that the person really does work for the company they say they work for. This is not always easy because generally recruiters don’t meet the people they are dealing with. All the arrangements are made remotely.

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