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Fraud… Are You Next?

“No, it won’t happen to my firm! We’re always careful…”
 
A common statement when reading articles of this nature.  Nevertheless, news headlines of recent months forecast a challenging year ahead - recession is looming and with that, law firms can expect a drop in work received, difficult fees collection, employee layoffs, pay cuts.

FRAUD EXPOSURE

In these times, greed is no longer the primary cause of fraud, it is survival and with this, your firm's exposure to fraud increases without exception.

It is expected that the risk of fraud would increase for different reasons:
  • Those in money and having lost it will try and recover, increasing the potential for fraud. 
  • Those who need to make ends meet would look to lack of controls within an organisation to overcome shortfalls.
THE TREND
 
Previous to 2006, an average of five (5) cases were reported annually.  The past three (3) years have shown an alarming 300% increase in such claims and the amounts embezzled have doubled.  Claims reported are not only increasing, they are growing in size!

The anticipated trend is that there will be increasing numbers of small claims and the potential for large claims to increase in quantum.  Aside from direct money losses there is the potential for increased fraud claims involving Conveyancing matters.

Troubling is that most members do not know that not all these losses are covered under the Pll Scheme.
 
THE THREAT FROM WITHIN - PARTNER/EMPLOYEE FRAUD
 
FACT:
 
The risk of fraud will be from within and outside your law firm, regardless of whether your practice is in Kuala Lumpur or Alor Setar, whether you work with a big/medium/small firm or on your own - you are equally a potential target for a fraudster.
 
WHY?
 
The opportunity for fraud arises where there is a lack of supervision, poor financial and accounting controls and to a larger extent misplaced trust.

HOW?
 
It can be direct theft of cash money, forgery of cheques, individuals masquerading as land owners etc.
 
Protecting Your Firm
 
THERE IS NO QUICK FIX TO AVOID FRAUD
 
You must be:
  1. Constantly vigilant,
  2. Take control of the processes and procedures in your law firm, and
  3. Exercise supervision over staff and files
REMEMBER:
  • If it seems too good to be true, it is too good to be true! Use your common sense and listen to your instincts.  Ask detailed questions.  Conduct various available searches.  If you don't like the answers or search results, decline the client.  Be particularly wary of the rushed retainer offering fees above your normal rate.
  • Your staff are valuable assets in identifying possible fraudulent deals.  Often, they receive the instructions from a 'client' for a S&P Agreement, open the file and conduct the search before you do.  If they know the warning signs and look out for them, they will be able to draw your attention to possible problems early in the deal.
LOOK OUT FOR THESE WARNING SIGNS!
 
A client who cannot produce utility bills, assessment receipts, quit rent receipts or any other documents related to the property, except the 'title'.  A real owner usually has these documents going back a few years.

A direction to pay funds from your client account to a third person who is not a party to the transaction.

Potential clients who claim that they are acting/representing a 'genuine owner', 'relative', 'parent' etc who is too ill to come to the lawyer's office.  Even if they produce a Power of Attorney, you must verify it independently.

For more information, read the Case Studies.
 
4 STEPS TO REDUCING FRAUD RISKS
 
Awareness is key!  Complete prevention is impossible, because fraudsters will always come up with new methods as their old methods become outdated.

Be alert!  Stay up to date on the most recent scams reported.  Talk to fellow lawyers and your staff about these scams.

Continue to educate yourself and your staff.  The more people are alert to the unusual elements in a transaction, and who are willing to ask the next question, the better position you and your firm are to avoid being a victim of fraud.  Some form of 'trigger alert' method can be implemented to safeguard your firm.
 
Diligence.  Be diligent in all aspects of your practice: obtain photo identification of borrowers/purchasers, utility bills etc, and keep a copy of all documents obtained in your file.

CASE STUDIES - HOW DID THEY DO IT?

Old Files
 
Senior Conveyancing Clerk in Firm A had full run of the firm's Conveyancing files.  Firm did not have a standard file review system, there was no supervision exercised over the senior clerk nor did the lawyer conduct regular spot checks.  Partner would only get involved when there were high net worth clients.  Conveyancing clerk began forging client's signatures on uncollected title documents.  Five (5) properties were sold to unsuspecting bona fide buyers.  Firm was sued for negligence.
 
Land Titles - Reported Lost
 
Despatch boy in collaboration with accounts clerk would masquerade as land owners/lawyers who had misplaced their land titles.  Upon obtaining new titles from the land office, they would approach potential buyers to sell the property.  At least ten (10) properties were sold in this manner before the firm's partner found out what was happening; the discovery was made when a fellow lawyer telephoned regarding his client's purchase of one of the properties.
 
Fake Power of Attorney
 
A couple, with a Power of Attorney ("PA") from a relative living in New Zealand approached Firm X to handle the sale of a plot of land.  The relative, they claimed, was ill and unable to travel.  All the details provided matched those on the title they produced.  On obtaining the 10% deposit of RM500,000.00, the couple disappeared.  It was later discovered that the land belonged to a Malaysian, R living in New Zealand who had been blissfully unaware of any wrongdoing and did not give a PA to anyone to sell his land.  The firm was sued for negligence in not verifying the PA and not conducting proper searches.
 
Identity Fraud
 
C, claiming to be a lawyer, produced fake court orders to the land office and sought to transfer a property to G.  When the real owner checked on his title a year later, the land had already been transferred to G.
 
MyKad or YourKad
 
E, requested a lawyer to handle a sale of property for his ailing mother, L, who was wheelchair-bound.  Signing of documents etc were done via E who would take the documents 'home' for L to sign.  Identity matched those details on her utility bills and myKad.  One year after the transaction, lawyer was sued by L, who was in fact well, and had no intention of selling the property.
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