Bank manager in £21m loan fraud

A bank manager carried out a £21m fraud on his employers as they named him business manager of the year.

Donald Mackenzie, 45, admitted at the High Court in Edinburgh to taking loans over five years up to March 2004 from the Royal Bank of Scotland by fraud.

The father-of-two had been employed as a business manager at the bank's

A judge deferred sentence on Mackenzie for a background report, but rejected a plea he be allowed to remain on bail.

Mackenzie also pleaded guilty to stealing £37,170 between 15 May 2000 and 14 April 2004 while employed by the bank.

Lord Kinclaven told him: "Having regard to the nature of the matters before me I am satisfied that the appropriate course is that you be remanded in custody."

Advocate depute Alex Prentice said Mackenzie was caught after the RBS introduced a new loan guard computer system.

Information technology specialists found suspect data had been put in by Mackenzie, who had used his unique login identification.

They traced a series of "highly suspicious" transactions and Mackenzie's line manager was contacted.

False accounts

Fraud squad detectives were called in and he admitted creating false loan accounts in names similar to those of genuine bank customers.

The advocate depute said: "What initially appeared to the bank to be a small number of anomalies did not just snowball but avalanched into a large complex scheme."

Mr Prentice said the bank had taken steps to recover money, but estimates its current losses from Mackenzie's activities at £10m.

THE ROLE OF FORENSIC AND INVESTIGATIVE ACCOUNTANTS IN COMBATING WHITE COLLAR CRIME: BROAD OUTLINE

1

Some five years ago, Steven Powell of ENS Forensics caused a stir when he argued in an article in the magazine “Without Prejudice”, that forensic work is handled better by lawyers.  This invited a torrent of comment to the contrary by other well known names in the industry.

2

Forensic investigations have evolved beyond investigation of fraud and misconduct in keeping with the pace at which serious economic crimes are being committed and becoming more sophisticated.  The need arose some time ago for a wider range of specialist services by virtue of statutory and regulatory requirements as well as constantly evolving corporate governance responsibility required in both the public and government sector, not only to investigate alleged irregularities, but also to take steps necessary to prevent fraud and corruption and improve the ethical climate within organizations, Mr Johan Van der Walt from KPMG retaliated in a subsequent article.

3

Van der Walt emphasized that the range of forensic assignments broadened from mere investigation of fraud into loss of profit determinations, claim verifications, quantum of damages and factual and legal asset tracing, freezing and forfeiture.  This resulted in the development of specialized forensic skills in the technology field as well as areas such as corporate intelligence, intellectual property violations , fraud Hotline, fraud risk management, fraud policies and response plans and the measurement of the ethical climate   The traditional investigative capability, Van der Walt rightly points out, which a particular individual may have demonstrated gave way to the multi- disciplinary experience and skills of the forensic team, representing a wide range of legal, accounting, technological, investigative and financial skills.

4

The Forensic companies today are staffed with skilled individuals drawn from a variety of backgrounds and industry sectors to meet the very complex demands of the forensic client.  Each assignment will dictate the required skills and expertise to undertake a forensic investigation.  Each relevant discipline has its own place in the field of forensic investigations and clearly accountants will better understand complex financial transactions and who better to evaluate the evidence required to be let at a judicial forum and its admissibility than a lawyer?  Van der Walt correctly states that the mature forensic practice provides a full range of forensic services and balance is all important.

The title of Powell’s article actually reflects a very true situation in the sense that Forensic Accounting Services are no longer an “Exotic Avocation”.  Steven Harcourt-Cooke of Computer Forensic Services states that “Companies are tired of paying big fees to lawyers with no results.  Previously forensic firms were the last to be called in after a fraud has been committed, now they are the first, because one needs a variety of skills and especially Computer Forensic skills to get to the bottom of an investigation quickly.”

6

As Powell stated, 10 years ago, forensics was considered the exotic avocation on the extreme fringes of the accounting profession.  Today it is very much mainstream with proliferating sub-disciplines such as forensic valuations, litigation and computer forensics.

7

With white-collar crime reaching scary proportions forensic specialist are no longer being called in after the event but are engaged by companies to strengthen their internal risk control and fraud detection systems.  The difference over the last 10 to 15 years is not the number of fraud incidents but the scale thereof, e.g. Tannenhaum matter, Fidentia.

8

King III on Corporate Governance has prompted stricter reporting requirements for companies and disclosure of fraud.  Forensic investigations involve a painstaking reconstruction of the paper and money trail, identifying the source and recipient of funds.  Once the evidence has been obtained, it must be able to stand up in the court.  “Courts don’t convict where there’s uncertainty, so the evidence must be strong”, says George Papadakis, former CEO of GFIA

9

In an article entitled “Even the con artists are feeling the pinch”, by Marcia Klein in the Sunday Times of June 21 2009, she states that in SA white-collar crime has been relatively easy to perpetrate, but slow to punish   The average time to secure a conviction she states is about 5 to 6 years and sentences are lenient [examples].

10

Klein quotes director Paul Winer from Werksmans as stating that a more serious approach to white-collar crime appears to have been adopted in the investigation of the Tannenbaum matter where all the institutions including the NPA the AFU SARS and the Reserve Bank are looking into the matter.  This however is nothing new, taking the Fidentia investigation as an example where the NPA, more specifically the DSO, worked hand in glove with GFIA, the Reserve bank, FSB, FIC, SARS, Curators and law enforcement agencies  abroad in investigating and bringing the perpetrators to court.  With the assistance of financial spider charts, analysis of banking records and transactions, a solid basis was laid in the forensic investigation for a myriad of charges to be brought against the accused, ranging from Fraud and Theft to Money Laundering, and a number of statutory offences inter alia contraventions of the Financial Intelligence Centre Act, No 38 of 2001, as well as the Income Tax Act, No 58 of 1962

11

As regards sentencing considerable criticism has been leveled at lenient sentences imposed in serious fraud cases.  A welcome approach to sentencing white-collar criminals has been detected in our Specialized Commercial Crime Courts of late.  Forensic reports quantifying losses suffered by complainants have played an important role in aggravation of sentences and play an important role in plea bargaining.  Steven Goodwin had no choice in plea and sentence negotiations with the DSO but to accept a long term of effective imprisonment,  by virtue of the fact that the State could prove that 93 million had been laundered through his company accounts and moved abroad.  In the more recent De Grandhomme trial in Cape Town the accused, tried for the second time in a Trans-national Fraud matter, was sentenced to direct imprisonment of 30 years.

12

In a recent article, “Prevention is better than Prosecution”, published in De Rebus October 2009, Advocate Jacqueline Fick of PWC an expert at risk management, states that the heart of cyber crime is all about illegally obtaining information, being the most valuable asset of any business or government department.  Yet we fail to protect it with the same vigour as we protect other assets such as money or property.  The focus should be on prevention rather than on the prosecution of cyber criminals.  Devoting time and resources to implement strategies to make it difficult for criminals to perpetrate their crimes within organizations is more efficient and cost effective than trying to catch them after the fact.

13

As an organization’s most valuable asset, information, underpins every strategy, system and business objective, it is therefore critical to preserve its integrity in every form.  Achieving information assurance in an organization through the implementation of a defense in depth strategy is where the forensic companies can play an important role by managing information related risks in order to protect and defend information and information systems, by ensuring confidentiality, integrity, authentication, availability and non –repudiation.  This will ensure that the right users have access to the right information at the right time.

(Gagasi Radio Case, WP Rugby Case – ABSA cash focus system )

14

Improved technology has led to improvement of forensic investigations as the use of new software packages can turn a task that used to take weeks or months into a matter of days or hours.

15

There’s no doubt Papadakis has stated that “Forensics is regarded as the sexier side of accounting. It requires an instinct for investigation, a meticulous approach to data gathering, good interviewing skills and the ability to prepare cases capable of standing up in court.  It’s definitely not for those of timid disposition”.

Bruce G Morrison

GFIA Cape Town: 20 October 2009