Fraud prevention in recruitment and consulting
By Gemma Rubel, FinCrime Manager, Sonovate
The Ever-Evolving Threat
Financial crime has long been part of the landscape for all businesses, and the recruitment industry is no exception. We are all familiar with anti-fraud measures such as KYC and AML, and training on how to spot fraudulent behaviour is a given in almost all roles. But is it enough? Financial crime is a constantly evolving beast. As soon as one scam is exposed, another more elaborate one pops up. The scammers are clever and it’s their job to constantly reinvent themselves and their crimes.
Like many other businesses, Sonovate is committed to preventing fraud. Over the last few months, we have observed some new trends, particularly in the area of impersonation fraud. I’d like to share three of them here, along with our suggestions of how to avoid falling into the bear-traps, because preventing fraud benefits us all.
Umbrella Company Impersonation
Umbrella Companies facilitate the payment of tax, NI and VAT for contractors, and they can play an important role in making this run smoothly. But there is evidence of fraudsters impersonating Umbrella Companies to operate sophisticated scams.
The Way it Works
The fraudulent Umbrella Company is set up quickly and appears to be legitimate. Their purpose is to defraud the contractor, the recruitment agency, or both. Often they will target the VAT element of a contractor’s payment, but it could just as easily be the NI payments or the tax. Their aim might be to skim off a percentage for themselves, or they may plan to take the lot. The result can be severe financial loss, not to mention the impact on good faith and reputation between the parties involved.
How to Prevent It
If it sounds too good to be true, then it probably is, and alarm bells should be ringing. Some of these fraudulent Umbrella Companies are offering contractors 90% of their take-home pay, or making other equally unbelievable claims. Some fairly rudimentary checks will throw up big clues. A quick look at information held at Companies House might reveal some of the following:
- Non-UK based directors
- SIC codes unrelated to recruitment
- Half a dozen companies set up at the same time with similar names
- Workers moving between the companies
- The company closing after less than a year, to avoid filing accounts (and then being set up anew)
For more guidance on spotting umbrella fraud, speak to your relationship manager at Sonovate. And if you are targeted by such an operation, or come across them, there is an HMRC reporting tool you can use, to make sure they are identified and prevented from continuing.
Another current trend is for scammers to impersonate contractors. The fraudsters steal or invent an identity and register with a recruitment agency, but the candidate whose name then appears on the books doesn’t actually exist.
How it Works
An application is made, using fake personal details. ID will be supplied, but is stolen or forged, and false references will be supplied. The candidate is placed with a client but never turns up for work. By the time it is realised and reported that they haven’t appeared, and in fact don’t exist, the remuneration has been processed and paid out, never to be recovered. Similar fraudulent activity can involve a genuine contractor altering their hourly rate or falsifying timesheets in order to increase the amount they are paid.
How to prevent it
This type of fraud can be prevented by a combination of rigorous processes, thorough checking and good communication. Make sure the candidate is who they say they are. Their credentials should be investigated using more than one method. By all means, telephone the referees listed, but also check that their email addresses are genuine. Use tools such as Linked In to verify work history, and be circumspect if details are patchy. Above all, timely communication is critical. If someone doesn’t turn up for work when expected, a process must be in place to ensure the recruitment agency is alerted immediately. And if there is still any reliance on manual returns for contractors, this should be updated so only electronic timesheets are used.
The final of our three current trends is client impersonation. This could involve a company which simply doesn’t exist, or one which has something to hide.
How it Works
A client contacts a recruitment agency to say they have a number of potential contractors they want to use, and requesting to put them through the agency’s books. Of course, the contractors don’t actually exist and the payments for them are received by the fraudulent company owners. An alternative scenario could involve the candidate being genuine, and the client attempting to defraud both parties.
How to prevent it
Again, vigilance is key. Use a number of tools to verify a company’s credentials. Companies House is a good place to start, and you will undoubtedly have internal checking systems, but additional investigation can be useful. For example, Google Maps can verify that the building listed as a Head Office really exists and is what it claims to be. Check sites such as Linked In or, simplest of all, pick up the phone and ask the receptionist to confirm their location.
In summary, check, check, check. Don’t rely on tried and tested anti-fraud procedures because fraud is constantly evolving. Be creative in your investigations, using social media, telephone or even face-to-face verification. Never rely on a single source of information or a single reference, but cross check, and take nothing at face value. It may be time-consuming and we all know time is money. But this is an investment that is well worth making. Don’t let the fraudsters win, when a few extra steps in checking the facts can keep you one step ahead.