This article focuses on bank fraud and fraud against other funding organisations.
Fraudsters often defraud banks by securing an overdraft and then maxing it out with no intention of repaying it. When banks do not impose a form of security, such as a bond over the company’s assets, they stand to lose a considerable amount.
Another method fraudsters use is to breach their loan covenants. A loan covenant is an agreement between the bank and the recipient that they will not undertake certain actions, or will fulfil certain conditions. Businesses with ailing financial health often manipulate their financial statements to satisfy the terms. An example of this would be by overstating turnover or understating their liabilities. When these businesses later collapse, the bank is unable to recover the loan.
Fraud Against Funders
The techniques used by fraudsters to defraud other funders are similar to these. We often encounter company directors who submit overly optimistic forecasts, which are based on excessively generous assumptions. These forecasts predict an unrealistic financial performance and often conceal liabilities and amounts due to third parties. This is to convince funders of the sound financial health of their companies.
It is standard procedure for banks and other lenders to perform due diligence checks before taking on new clients. However, these checks can never guarantee that some fraudulent clients won’t slip through the net. This is particularly prevalent when the clients in question operate within high-risk sectors, e.g. cash in hand businesses, investment companies, or have overseas dealings. Forecasts from younger companies are also subject to a higher risk. This is because less established businesses may not have historic trading results to back up the figures used in their forecasts.
How we can Help
We are experienced in reviewing financial information for reasonableness and we can assist in identifying red flags. Forensic analysis of transactions can analyse records to check the reliability of financial information. It can also look for information that has been omitted or changed to achieve a required level of financial performance.
We assist banks and third party funders, and have provided expert evidence in investigating an entity’s financial position and use of funds. Our experts prepare reports in accordance with Part 35 of the Civil Procedure Rules. This is to assist in achieving a fair settlement as part of dispute resolution.
If you have any questions or if you would like to discuss bank fraud with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Forensic team.
This article originally appeared on the blog of our member firm, Tait Walker.