| Fraud is a massive problem globally. Some of the | | | | speak of left with which to pay their fees! Often, |
| biggest economies are prime targets for the | | | | the directors are the ones that have |
| fraudster, for example in the USA, UK, Canada | | | | disadvantaged the company, causing it to enter |
| and Australia. Fraud is found in all the financial | | | | into insolvency proceedings. Sometimes insolvency |
| centres including London, New York, Hong Kong | | | | practitioners are too close to the directors and |
| and Tokyo. The scale is unknown as it is a hidden | | | | are reluctant to enquire deeply into the causes of |
| crime. Most fraud that is discovered is not | | | | a company failure. |
| reported and many large organisations appear to | | | | There are some insolvency practitioners that can |
| be happy to write off the losses rather than face | | | | see the merit of employing a forensic accountant |
| the publicity a large fraud would bring! | | | | to analyse the cause of a company failure and |
| If an organisation suffers from the fraudster and | | | | determine whether or not assets of the company |
| wants to do something about it, there are a | | | | have been diverted - thus causing the insolvency |
| number of paths it is able to take. These depend | | | | and also placing the assets out of the reach of |
| on the required outcome. A company might want | | | | the disadvantaged creditors. |
| to send a message to all its staff that fraud will | | | | The practice of investigating companies that have |
| not be tolerated, and make an example of the | | | | gone under is one method of recovering assets |
| fraudster. It may want to fire the culprit and | | | | from the initial fraud. In some cases it is possible |
| report the matter to the police, hoping for a | | | | for a major creditor of a company that has |
| prosecution which will definately get their message | | | | suffered a fraud to petition for its winding up thus |
| across. On the other hand a different company | | | | allowing an investigator to work under the |
| may not want this publicity and be happy to | | | | provisions contained within the Insolvency Act |
| simply identify the weaknesses in its accounting | | | | 1986 (in the UK). This will provide some robust |
| controls and make sure the problem doesn't | | | | powers of investigation to the investigator who is |
| repeat itself in the future. However, some | | | | able, for example, to demand information and |
| organisations will most certainly wish to recoup | | | | documents from anybody under the provisions |
| their losses. For some the loss might be too much | | | | contained within Section 236 of the Act. Not only |
| to bear and cause business failure. In this case it | | | | that, if a person refuses, he can be brought |
| might enter the insolvency process and go in to | | | | before a judge in a court of law to be questioned |
| administration or liquidation. | | | | under oath. |
| When a business does come under the control of | | | | The use of the Insolvency Act 1986 is one |
| an insolvency practitioner there may be an | | | | solution available for the recovery of assets after |
| investigation if a fraud is suspected. Not all | | | | a fraud. It is only suitable where the best result |
| practitioners will be as diligent as others when it | | | | can be obtained by encouraging the business to |
| comes to investigating the directors of a failed | | | | fail completely, which is often not the case of |
| company, especially if there are no assets to | | | | course. |