J. Smith PHD? Or Perhaps Not...

My wife has actually written quite a lot of this post - which is why you'll find her picture in the middle of it. She’s a United States citizen and lived in the US for many years, so she’s more familiar than I am with a particular type of fraud that used to be a peculiarly American – and actually relatively harmless – ‘vanity’ phenomenon, but which is now becoming a global and potentially very harmful problem.

Nearly all small or medium sized businesses screen potential employees themselves because the cost of professional screening is, on the face of it, prohibitively expensive. Actually, the price of professional screening is very reasonable given the potentially enormous costs of employing the ‘wrong’ person, someone whose credentials are not what they appear to be, or somebody who isn’t whom they say they are - but still a lot of people tend to take a look at the quote for professional help, shudder, and then decide to continue to DIY.

Most companies who do DIY personnel screening follow a standard procedure when they vet potential employees. They ask candidates to fill out an application, submit a CV, and provide references and photocopies of their professional credentials. That information is then checked – usually by a member of the personnel department or by managerial staff - against readily available databases with a view to confirming that the applicant is who he or she says that they are, that he or she has worked satisfactorily where he or she says that she has worked, and that he or she is financially stable and does not have a criminal record.

The problem is that most people who are not in the business of checking other people’s credentials don’t look beyond what are apparently obvious truths. If, for example, a candidate presents material that is apparently true in that there really is a record of a person by that name graduating from a particular school, or as having been employed as by a particular company, then they tend to accept that that person is whom they purport to be, and that their qualifications are valid. But should they?

Approximately fifty per cent of people regularly tell ‘porkies’ on their CV. Usually they're small decorative ‘porkies’ - just a tweak of a title here and a soupcon of exagerated responsibility there – nothing so drastic as a downright (and actually fraudulent!) lie. Just icing on the cake, really - that little bit extra that might get them the job they want at the salary they think they deserve.

Sadly, though, there’s been an enormous rise in identity theft over the last several years - and an even more substantial rise in the number of people who are prepared to fake or buy qualifications or manufacture references (lie, in other words!) in order to 'decorate' their CV extravagantly, improve their prospects - or just get a job, full stop.

Fake qualifications aren’t hard to come by – I could get a Doctorate tomorrow on my so called ‘life experience’ – and they can be very inexpensive. Actually they look pretty good as well, because they’re turned out on standard Degree Certificate forms and use important – albeit deliberately misleading - educational ‘buzz’ words.

Would you, for example, know the difference between a Degree awarded by ‘Columbia University’ (which is genuine) and one awarded by ‘The University of Columbia’ (which is actually run out of somebody’s back-kitchen in Kentucky) when both Degree Certificates are, to all practical purposes, identical? Probably not – particularly were I your candidate and could back up my American ‘qualifications’ with a perfectly genuine American Passport and a perfectly genuine 15 year record of working in the US.

If you’re interested in finding out more about fake degrees, and how convincing they can appear to be to a potential employer, you just need to type ‘fake educational qualifications’ into Google. You’ll get http://www.instantdegrees.biz/ right there at the top of the page. Do tour the site. It’s an educational experience. And please do note that the ‘accredited colleges’ referred to in the blurb are perfectly prepared to give their ‘graduates’ a reference... And when you've been there go and have a look at http://news.bbc.co.uk/2/hi/uk_news/7600651.stm and read that, too. That's pretty educational also.

The fake degree market has changed a lot over the many years since I first became aware of it. It’s much more sophisticated now. Time was, people bought this stuff to stick up on the walls of their ‘dens’ to impress their friends (who likely knew – or at least suspected – that they were fake anyway), and who never intended to use them in any practical way. Actually, they were just another ‘vanity’ object that no one took very seriously – just like the ‘vanity plates’ you can buy for your car.

That isn’t the case any longer. Fake ‘Degree Certificates’ these days are intended to be used in the market place - and people obviously do use them. Moreover, they often get away with it because the people who are in the business of providing those Certificates make them more convincing and offer better back-up for the people who buy them all the time. And you can't always rely on a nosy hack to dig out the truth about them and report it all on 5 Live.

Fake degrees apart, don’t forget that candidates can present documentation and references that paint a perfect picture of the wrong person - or disguise the fact that they’ve spent the last five years as a guest of Her Majesty.

It isn’t difficult to steal someone else’s identity – ask any one of the thousands of people who have lost theirs lately - or to get around uncomfortable facts about one’s past history. The Rehabilitation of Offenders Act 1974 allows people convicted of many criminal offences to legally avoid disclosing those convictions once they are ‘spent’ and enough time has elapsed.

Neither is it too difficult – or even that risky – to manufacture a reference. All you need is access to a computer (to run off the letter-head) and a telephone. It's nice, of course, to have somebody who is prepared to answer the telephone as XYZ Company and swear that you are actually a model employee who worked has there for 10 years but is now (sadly, and to the great distress of the management) having to relocate for family reasons, but it's not vital. In a pinch you can do it yourself. An amazing number of people, given a telephone number that is apparently answered correctly, never bother to check whether it’s actually listed to a company or not. They accept what is – apparently – an obvious truth.

The fact that someone has been silly or desperate enough to buy a piece of paper, assume a false identity, manufacture a reference, or try to bury a criminal conviction in order to get a job doesn’t automatically mean that that person intends to steal from or defraud a potential employer. But you do have to aware that you might be a target for people who are neither silly nor desperate, but might want something you’ve got – like saleable information.

Fraud and theft by employees is always a potential problem for every business, but never more so than during times of economic hardship (which means sometimes) or when financial or other information is at a premium (which means always). If you DIY your personnel screening be sure to check identities and addresses, credentials, credit and criminal records and work histories very, very carefully. Mistakes can be expensive.

The 'Halfway House' - A Route to Safe Trading

You can get an awful lot of encouraging information about a prospective new customer from other people in the trade, a formal Credit Circle, a credit reference agency - or all three sources - and still feel nervous about supplying on credit. And you should.

The fact is that some customers will pay X number of their creditors absolutely to terms, but still cause endless problems for one single supplier – and that fact becomes particularly noticeable if you sit (as I do) in Credit Circles, and listen to the information that comes back from members sitting around a table.

Seven or eight members of a Credit Circle can report a single customer as being an ‘OK account’; a ‘good account’; or ‘a clean account’, but one or two other members (usually the ones who have put the customer on the Agenda in the first place, of course!) will report that same customer as being ‘slow’, ‘needing chasing’, or just as being ‘a nightmare’, and talk about unanswered letters, unproductive telephone calls, and invoices that are 90 or even 120 days overdue.

Noticeably, it’s small suppliers that tend to talk most often about ‘nightmares’, slow payers, and customers who need to be chased hard for payment – and it's noticeable, too, that the ‘nightmares’, the slow payers, and the customers who need to be chased hard for payment are frequently new accounts that begin to go pear-shaped immediately following the first delivery.

Usually, small supplier victims have done their homework. They’ve obtained a satisfactory new account opening form; made all the relevant enquiries; received satisfactory answers, and set credit limits based on those facts. Unfortunately, that doesn’t mean that they’re going to get paid on time – or even at all – despite the fact that their delinquent 'nightmare' customer is behaving very well indeed so far as other suppliers are concerned and has a clean bill of health from a credit reference agency.

The answer to avoiding potentially predatory new customers - and any new customer has the potential to be a predator however solid it appears to be from information supplied - can be to use a ‘halfway house’ technique.

Halfway Houses in England used to be public houses cum hostelries situated halfway between a place that was an inconvenient distance from the next possible ‘stop-over’, but the present purpose of ‘halfway houses’ is to act act as bridges to normal living and to provide monitoring and support for people whilst they begin to integrate (or re-integrate) with society.

If you supply goods against the security of post-dated cheques, you can act as a ‘halfway house’ - offer support to your customer, monitor its behaviour, integrate your customer into your own commercial society, and safeguard yourself and everyone else that is part of that society as far as you possibly can.

Post-dated cheques are a ‘bridge’ to ‘normal’ commercial living. They allow you to offer credit and trust in a limited, relatively secure, and comparatively safe way. They also, of course, allow you to offer a form of credit when you think it would be commercially inappropriate or inadviseable to demand cash with order.

An honest and financially stable customer who wants or needs what you have to offer and is looking to trade long-term will never be offended by a request for post-dated cheques as security for a first - or even a series - of preliminary orders. They're probably going down the 'halfway house' route themselves.

And yes, I know I' ve said 'comparatively safe' and 'relatively secure'. Dishonoured cheques are not always 'indefensible' - but that's a whole other story...

New Legislation - Existing & Forthcoming New Provisions to The Companies Act

Significant changes to the Companies Act will come into force in October this year.

• Provisions relating to authorised and nominal share capital will be abolished, and existing companies will be able to remove pre-existing references to authorised share capital, and allot shares above that ceiling.
• The Memorandum of Association will no longer set out the objects of the company. Existing companies will be able to amend their Memorandum to change or remove this provision, and objects will be unrestricted for new companies.

Most importantly here: companies intending to register a similar name to existing companies will need the consent of those companies before being allowed to register the name.

A number of provisions have already come into force:

• It is no longer a requirement for private companies to hold Annual General Meetings.
• Extraordinary Resolutions have been abolished.
• The notice period for all meetings is now 14 days.
• Annual Returns for private companies need no longer give details of shareholders’ addresses.
• The period for filing accounts has been reduced to nine months from the year end for private companies, and six months from the year end for public companies.

Most importantly here: Directors have a duty to avoid conflicts of interest, and Directors’ duties are set out in statute for the first time. Duties include promoting the success of the company and considering the interests of stakeholders as well as shareholders.

With Friends Like This...

Obviously, businesses need to collect the money due to them from debtors. Equally obviously, their ability to do so is vital to the economy – particularly as banks remain reluctant to lend money. Sadly, the Government does not seem to be able to grasp these simple facts and - despite everything we hear and read about Government plans to help business - seems intent on making things worse, not better.

• Court fees for debt collection are still set to rise so substantially that it will in many cases be uneconomic to use the Court system – and they are already so high that I have been advising clients to avoid going down that route for some time.
• The Insolvency Service has already increased the deposits payable on Company Winding-up Petitions and Creditors’ Bankruptcy Petitions as of April 6th. Those fees, too, were already prohibitive – so that route, too, seems set to be closed to many creditors.
• Helpful proposals to amend the laws governing Attachment of Earnings and Charging Orders will not now be implemented - probably due to public opinion as to the Government's handling of personal data.

And just to bring a little more sunshine into your life: creditors chasing individual debtors or consumers must now use new wording in their chasing letters – debtors must be advised that agencies such as Citizens Advice can help them, for example – and it is proposed that Letters Before Action contain a 14 day cut-off period rather than the 7 day period previously demanded. This is an extra administrative burden on creditors and can only result in further delays in payment.

With friends like this...

Fraudsters are Equal Opportunity Opportunists

Fraud is always with us – and hard times increase the temptation for customers, suppliers or staff to steal – but small business tend to think they are too small, and know their staff, their customers, and their suppliers too well to fall victim to it.

Sadly, nobody knows anybody that well - and it’s small businesses rather than large ones that tend to attract potential predators, because large companies are hyper-aware of their vulnerability to fraud and theft, run very tight systems, have prospective employees professionally vetted, and keep a close eye on the activities of the employees they’ve already got.

Things to be aware of:

Some suppliers will under-deliver goods and over-charge for delivery if they think they can get away with it. Deliveries need to be checked carefully BEFORE the Delivery Note is signed.

Some customers will claim under-deliveries of stock when the delivery was actually correct. Delivery personnel should always be sure to get signed Delivery Notes and, as signatures are often illegible, Delivery Notes should demand that the person who signs the Note add his or her name in capitals together with his or her position with the Company.

Some customers will simply disappear without paying - but they will only be able to do so if the supplier hasn’t done it’s homework before agreeing to give credit and delivering goods. Fraudsters quite often set up off-the-shelf limited companies with the intention of using those companies to obtain goods for which they have no intention of paying. Addresses are often empty factory premises – and there are, alas, plenty of those to chose from. Neighbouring businesses have no reason to question ‘new arrivals’ – particularly if the place looks busy and occupied and goods are going in and, of course, going out again. Many newly set up off-the-shelf limited companies are quite genuine – but that doesn’t necessarily mean that they are a good credit risk. Cash with order is the only safe way to deal with companies that have no trading history – and you should NEVER give credit to anyone who can only give you a mobile telephone number. We’ve all become so used to using mobile telephone numbers that we’ve stopped thinking about what they really are – mobile and (ultimately) disposable. Don’t think that people haven’t fallen foul of that. They have.

Employees tend to steal goods or cash. There should be no opportunity for anyone to do either, but a determined thief can always find a loophole somewhere. Two thirds of all employee fraud is motivated by debt or gambling problems, but greed or need are obviously also factors. Review your bonus structure and pay attention to staff morale: people tend to rationalise that their performance is worth more than they’re getting, or that their job is so unsatisfactory that they’re entitled to get something extra out of it. Investigate departments that have a high staff turnover: it’s easier for an employee to look for another job than to blow the whistle on fellow employees whom they suspect of stealing. Monitor the car park, and look carefully at the ‘toys’ people have. It’s stupid to flaunt one’s ill-gotten gains, but people do it all the time. Consider whether the salary you are paying would really support the Blackberry, the Rolex, the vehicle in the car park, or the exotic holidays.

Pay attention to ‘whistle-blowing’ letters; always take them seriously, and look carefully at the claims made. One percent of the time they’re spiteful rubbish. Ninety-nine times out of a hundred they’re a red flag that indicates that something is seriously wrong somewhere and that it’s time to start turning over stones and looking at what’s going on underneath them. It’s particularly important at the moment NOT to ignore whistle-blowing letters. They tend to be rare when times are bad because people are afraid of rocking the boat and are therefore more willing to turn a blind eye until they can distance themselves from the problem by getting another job – which is why, of course, you should be wary of high staff turnover in particular areas.

Credit management isn’t just about getting in money from customers. Fraud and theft by customers, suppliers and staff is on the increase. It’s unpleasant to have to keep a watchful eye on everyone around you and pay attention (as you should!) to what your employees obviously do or do not have. It’s unpleasant to have to monitor the relationship that exists between your sales team and your customers and take careful note of year end sales team behaviour, and post year end issue of credit notes - but you should.

Professional fraudsters are looking for a quick in and out. They’re easy to avoid if you’re careful, and they’re a fast one-time loss if you’re not. Customers, suppliers and staff work under the ‘sight-line’. They aren’t easy to spot unless you’re actively looking – and they can bleed you slowly to death if you’re not looking. Begin looking.

New Legislation - Debt Relief Orders

Debt Relief Orders were introduced in April. To whom exactly they are going to be a relief remains to be seen.

The intention of the legislation was to allow people with no assets and a low income access to debt relief - Consumer Affairs Minister Gareth Thomas clearly stated that the new debt solution was aimed at people on low incomes and with little money - and (as the length of Debt Relief Order is typically 12 months, but can be extended) time to pay off their debts.

In reality, however - which is where the rest of us live - the legislation means that anyone who has debts of less of £15,000, assets of less than £300, and a disposable income of less than £50 a month is entitled to to apply for a Debt Relief Order without having to enter full bankruptcy, and (if the Order is successfully completed) can be free of their debts after a 12 month period - which I think you'll agree is not quite the same thing at all.

Debt Relief Orders can be applied for on-line. An approved intermediary completes the application on behalf of the applicant, and on receipt of the application and a fee of £90 (which is about a fifth of the fee for a regular Bankruptcy Order) an Official Receiver will make the Order, which will thereafter protect the debtor from any enforcement action by his or her creditors. There is no Court involvement whatsoever in this process.

The legislation states that once an Order is in place, the debtor should make arrangements to pay creditors should their financial situation improve - but who is to monitor those changes in situation? It seems to me that monitoring a debtor's circumstances and notifying the Official Receiver of any change will fall to the creditor.

I have yet to work out a foolproof ( or any other!) method of successfully monitoring a debtor's true circumstances, and I would be delighted to hear from anyone who has. (Do try to think everyone; Accountants KMPG expect up to 50,000 people to take advantage of these Orders this year, so there could be a pot of gold at the end of rainbow for anybody who comes up with a fail-safe 'MonitDebt' system).

Anyway - and coming back to the real world - it would (a) be wise to try and identify customers who might potentially apply for a Debt Relief Order and give such accounts special attention - the debts could, after all, become uncollectable very quickly, and consequently standard collection methods would almost certainly fail - and (b) monitor any customer who has obtained such an Order as best you can and notify the Official Receiver of any change in that customers' circumstances as quickly as you can.

I am not - as you have probably worked out for yourself - thrilled with this (doubtless well-intentioned) legislation. I am sure that it will be a relief to those people described by Gareth Thomas as 'already struggling' and who need to be 'in control of their finances and treated fairly'. I am also quite certain that it will be abused.

Patience Is An Important Post-2008 Virtue

Attitudes to debt collection, and collection techniques that were appropriate, and which worked well in the past, need to be adapted if they are to work as well in the current economic climate. 2009 demands a more imaginative, flexible, patient approach to collection, and a greater willingness to compromise and look to long term goals rather than short term gains. Consequently, if your customer has a genuine problem of the sort I was talking about a few days ago, it’s a bad idea to insist on immediate settlement, try to impose settlement terms that are unrealistic, or rush to issue proceedings – or in fact to take any action that might push the customer ‘over the edge’ and into insolvency.

It’s far wiser these days to accept long term settlement offers and continue to trade on a cash with order basis and accept small instalments on the outstanding balance of the account than to push for larger or more frequent payments and/or stop trading altogether. After all, even if the arrangement fails and instalments stop after two or three months, the outstanding balance of your account will have been reduced – and you will have been selling your goods or services safely in the interim.

This is obviously better option than getting little or nothing by pushing too hard – and the rewards gained from exercising flexibility and patience would be infinitely greater than anything you might receive from exercising your right to issue legal proceedings to try to recover the debt. Proceedings are already very costly – and the cost of issuing them may rise by 233% if Ministry of Justice proposal are accepted. There are indeed times when issuing legal proceedings, obtaining Judgment and then putting the whole issue on the back-burner until times get better can be a very good option – but those occasions come along a lot less frequently than they used to, simply because businesses are recovering a lot less frequently than they used to, so on the whole it’s better to avoid using the Court system.