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, many
organisations will want to get their money back. 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
one solution available for the recovery of assets after a fraud. 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.
