£150,000 Fraud

When my children were very young, they used to ask me what I did for a living. After a very vague attempt of trying to explain to them my varied roll as an accountant (and even that didn’t put them to sleep) I said, “I do sums, I add things up.”

Sometimes however, things just don’t add up. In August 2013, we were asked to take on the accounts and bookkeeping of a client who was involved in four different companies. Two of these ran pharmacies. One had one pharmacy and the other had five. There was nothing unusual in this assignment  other than they asked us to make payments from their bank accounts to the suppliers and the staff wages – to do this, we were given complete access to their bank accounts and we still continue to provide this service today.

Remembering my audit training, I set up a system dividing the tasks and ensuring only I had access to their bank accounts.

It obviously took us a while to come to terms with what was required and we then set about producing the accounts for the year ended 30th June 2013 for the single pharmacy company. When we produced the figures, something did not add up! We asked the previous accountant for some explanation and the bookkeeper there replied extremely vaguely and was not of any help. The accounts that we had produced just did not add up. Obviously, I don’t mean literally, they just didn’t appear to be right. Apart from the queries that the previous accountants were being vague about, the gross profit percentage was ridiculously low even with an inflated stock figure. Further investigation showed that the previous year’s stock figure was double what I expected it to be on a single pharmacy. As I said earlier, things just didn’t add up!

I asked one of the directors to come in to try and solve the mystery. I went through pretty much everything with him and we couldn’t get to the bottom of it. Eventually, I said to him “it looks like all the big suppliers are correct and the creditors at the end of the year would appear to be okay. You look as though you have spent about £10,000 with a particular supplier.” He said “No. Possibly £1000.” I asked the question again about another couple of small suppliers, with the same response.


I looked at the creditors ledger print offs for each of these suppliers, I looked at the invoice references, went through the files and what do you know? No invoices! However, the ledger showed that these had been paid. Went through the bank statements, it showed the payments had been made to the correct supplier. But had they? I rang the bank who wouldn’t tell me who the payee on these payments was but told me the sort code. Surprisingly enough it was the same sort code for four or five supposedly different suppliers. So now I knew why it didn’t add up. It was a case of fraud!

So now it was back to the drawing board, I contacted the bank and asked for the sort code and account number for every payment going back to 2011. Obviously, this didn’t happen over night and when I eventually received the paperwork, I could see that nearly £150,000 had been paid into two bank accounts rather than the five or six suppliers that these were supposed to relate to. A definite case of fraud.

How is this able to happen? Well, in the first instance the previous accountant allowed the same member of staff not only to input the invoices, but also make the payments! Obviously with little or no supervision. How much of the accounts this member of staff produced I don’t know, but obviously no attention had been given to the results for the first year of trading of that one pharmacy business and the stock would appear to have been artificially raised to make the gross profit percentage good enough.

I am sure that you will not be surprised to learn that my client received the money back in full and the person involved in the fraud received a 20 month jail sentence and her son a 10 month jail sentence, as one of the bank accounts belonged to him and apparently he was spending all of the money. I question whether these sentences are long enough. I also note from the story in the Liverpool Echo on 24th June 2016 that it would appear that no censure was made of the accountants for putting a member of staff in the position were she was able to commit this fraud. The first lesson that you learn as an audit trainee is segregation of duties, yet they allowed her with little or no supervision to input invoices and pay them! Not only do I consider this to be a breach of trust, they clearly did not care about their client and were only interested in the fees they could get. The client actually paid fees to them for the time the fraudster spent making fraudulent transactions!

So the lesson to be learned is find an accountant who gives attention to detail, no matter how large or small your business is. Each client should be treated with the same level of attention and service. In that way everything will always add up!