CM September 2021

FRAUD
AUTHOR – Arun Chauhan
Three example areas serve to illustrate
the challenge:
1. In the Spring of 2021, HMRC launched a
fraud taskforce backed with £100m injection
by the Treasury. The aim is simple, those
that have abused the furlough scheme and
other Government funded grants or loans
will be sought out and recoveries made. This
focus to find and call out those that misused
schemes fraudulently has been mirrored
by banks who have lent money through the
Bounce Back Loan (BBL) scheme. Banks
are aware they have to exhaust their own
recovery process before the Government
guarantee will support them. This has led
to banks monitoring use of BBLs and where
they have been used for purposes which
do not align with declarations in the BBL
application, e.g., the business has not been
impacted by COVID or loans being used to
discharge borrowing from another company
with common beneficial ownership, banks
are making early demands for repayment
of BBLs and asking the customer to find an
alternative bank. If you are offering credit,
ask the direct questions about Government
schemes or BBLs that have been used and
push to have the debtor declare they have
used the monies correctly. There now is
a real risk that banks or HMRC may start
investigations.
2. Survival and opportunism has seen
diversification and creativity by a number of
businesses. Be it gin makers producing hand
sanitiser or a change by many businesses to
suppliers of PPE, the pandemic has seen
many businesses operating in markets
and with products they know little about.
However, whilst we can commend those
using instinct and networks to survive,
venturing into new business lines has seen
increased litigation. We have seen cases
where sellers have faced allegations of
misrepresentation when they have traded
in PPE. We have also seen business owners
be alleged to have stolen money through
their companies when they have promised
they can make supply of PPE but their own
supply chain abroad has failed leading to no
supply but use of money paid in advance to
them. If you are lending to a company, ask
them whether they have diversified during
COVID and what has become of those
contracts with respect to any litigation risk
or worse, allegations that they have oversold
or have been fraudulent.
3. Earlier in this article we made mention
of internal controls. The pandemic has
seen the weakening of internal fraud risk
controls. Examples of fraud that we have
advised on resulting from a failure to apply
internal controls correctly include an
employee helping a supplier by providing
confidential pricing information leading
to bid rigging, and a FinTech business
not carrying out adequate customer due
diligence which resulted in it allowing a
fraudster to progress a lending application
in excess of $100m which thankfully
was detected before monies were lent. If
lending, it is important to ask businesses
how their internal controls operated in the
pandemic and how they continue to manage
segregation of duties in a remote working
world so that you can be assured they do not
have an increased risk of discovering they
have been suffering losses to fraud not yet
discovered.
CONCLUSION
Business of all sizes and operating across all
sectors now must be alert to the risk of fraud.
It is especially important to see that fraud is
discussed more openly and frequently at all
levels of a business as it serves to educate
people to help protect from fraud but also
serves as a useful deterrent. Critically, if fraud
is spotted earlier, it is far more likely that the
damage can be limited for the business, its
employees and its creditors.
Arun Chauhan is the founder of Tenet
Compliance and Litigation. This article was
adapted from a presentation given by Arun to
the CICM Think Tank.
In 2020, it was
said that fraud
cost the global
economy $42bn. It
is said cybercrime
will reach $6trn of
loss. PwC reported
that 47 percent
of companies
experienced fraud
in the 24 months
leading into
mid-2020.
Advancing the credit profession / www.cicm.com / September 2021 / PAGE 13