Fraud – it is all about the money – isn’t it?

To misquote Jessie J, “It’s all about the money, money, money, forget about the price tag”.  Only for most people, it isn’t as simple as forgetting about the price tag.  We live in a world that has been hit by an economic downturn and an increase in the cost of living.  Employee fraud is on the rise.  According to KPMG’s 2024 fraud barometer, in 2023, UK employees and management were involved in fraud with a combined value of £221.3 million.

Public perception is that fraud involves stealing money for personal enrichment.  But that isn’t always the case.  Whilst personal enrichment can be a key motivation, it isn’t necessarily the only one.

A recent example involved an Academy where a budgeting issue led to a particular school incurring a deficit.  The problem was found to be a spreadsheet formula which excluded the salary costs of certain teachers which meant the school’s management was expecting to break even when in fact it incurred a loss of £250,000.

When the school’s manager identified that a deficit was to be made, he hid the mistake by making an entry for fictitious grant income which increased turnover and trade debtors by £250,000, so that the school then appeared to have broken even.  Because of the need to finalise and approve accounts within a very short period, only a few questions were asked of the manager and he was able to fob off the auditors.

The problem was compounded as the perpetrator failed to spot the spreadsheet error and so the deficit occurred again in the second year.  A further false entry of £250,000 was posted to erase the cumulative deficit, explained as grant income that was due for a second year.

So, at the end of the second year, the accounts suggested that the school was owed £500,000.  As part of the normal year-end procedures, the manager was questioned about the journal, not least because a school having trade debtors would be unusual and it would be highly unusual for the amount to still be outstanding after a year.

Rather than confess to the error, the perpetrator said that the debtor was grant income due from a local employer and proceeded to produce paperwork to support this assertion.

This raised further questions, as normally grant income was paid within a reasonable time and yet the earlier amount was still outstanding 12 months on.

Closer inspection of the supporting documentation led the internal auditors to question the validity of the grants, not least as the claims were for £250,000 each and only a one-page summary of student numbers had allegedly been provided to the body said to be providing the grant.

This was considered to be unusual, as normally a grant of this size would require detailed information.  However, before the manager could be asked further questions, he went on sick leave.

All journals raised by the manager were then considered and the artificially inflated turnover was identified.  The Academy had serious concerns about the manager’s actions but felt more information would be required in order to start a disciplinary process, and so instructed forensic accountants to assist.

As part of the investigation, the motive of the perpetrator was considered:

• Did he have an excessive lifestyle that needed financing?
• Did he have a drink, drug or gambling habit?
• Was he having an extramarital affair that needed funding?

His employers did not know anything about his personal circumstances as this school had recently joined the Academy and it would have been indiscreet to ask his direct colleagues given the nature of the allegations.

All significant costs were managed centrally and the manager only had signing rights to a certain level so he would have had to draft and approve one false invoice a week every week to steal £250,000 an annum.

This was felt to be unlikely, especially once supplier bank details were reviewed.  The manager did not have the ability to physically take cash from the Academy so why had he done it?

In addition to being embarrassed about confessing to a spreadsheet error, it was thought the manager knew the deficit would have led to job losses and he would have had to make some of his colleagues redundant.

So, when investigating an alleged fraud, and considering the drivers set out in the Fraud Triangle (see below), whilst it is important to consider whether there has been an actual cash theft, direct financial gain may not be the motivator.

In fact, motivation can be expanded into MICE, standing for money, ideology, coercion and ego.  In this expansion of “motivation”:

• Money refers to the financial pressure which makes the person commit fraud.  The financial pressure can be caused by lifestyle, debt, urgent family needs, addiction and others.
• Ideology means that the perpetrator considers his behaviour of committing fraud is for the greater good.
• Coercion means that there is a third party who intimidates, threatens and forces others to commit fraud.
• Ego reflects the fact that the individual feels that if he commits fraud, it will not be detected, or is to maintain or obtain a certain lifestyle.

In this example, ego was the driving force behind the perpetrator’s actions, not because he wanted to keep up his own appearances but rather because he did not want to make his colleagues redundant.

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