| By :
Mark Jenner
Globally, the problem of fraud is massive and growing every year. Economies all around the world are targets for the fraudster. Financial centres such as Tokyo and Hong Kong are prime targets but the full scale is not known. Much fraud is not reported because the victims, often publicly quoted companies, shun the publicity a large fraud would bring! If an organisation suffers from the fraudster and wants to do something about it, there are a number of paths it is able to take. These depend on the required outcome. A company might want to send a message to all its staff that fraud will not be tolerated, and make an example of the fraudster. It might want to get rid of the fraudster, reporting the matter to the authorities resulting in a prosecution - a clear message to other staff. On the other hand a different company may not want this publicity and be happy to simply identify the weaknesses in its accounting controls and make sure the problem doesn't repeat itself in the future. However, some organisations will most certainly wish to recoup their losses. For some the loss might be too much to bear and cause business failure. In this case it might enter the insolvency process and go in to administration or liquidation. When a business comes under the management of an insolvency practitioner there should be an investigation if there are reasons to suspect fraud. Not all practitioners will be as diligent as others when it comes to investigating the directors of a failed company, especially if there are no assets to speak of left with which to pay their fees! Often, the directors are the ones that have disadvantaged the company, causing it to enter into insolvency proceedings. Sometimes insolvency practitioners are too close to the directors and are reluctant to enquire deeply into the causes of a company failure. There are some insolvency practitioners that can see the merit of employing a forensic accountant to analyse the cause of a company failure and determine whether or not assets of the company have been diverted - thus causing the insolvency and also placing the assets out of the reach of the disadvantaged creditors. The practice of investigating companies that have gone under is one method of recovering assets from the initial fraud. In some cases it is possible for a major creditor of a company that has suffered a fraud to petition for its winding up thus allowing an investigator to work under the provisions contained within the Insolvency Act 1986 (in the UK). This will provide some robust powers of investigation to the investigator who is able, for example, to demand information and documents from anybody under the provisions contained within Section 236 of the Act. Not only that, if a person refuses, he can be brought before a judge in a court of law to be questioned under oath. The use of the Insolvency Act 1986 is a way to recover asets fraudulently stolen. It is only suitable where the best result can be obtained by encouraging the business to fail completely, which is often not the case of course.
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