Scrap paper trail reveals critical evidence

A recent case in Leicester highlights the fact that a forensic investigation involves much more than just looking at a company’s books.

A recent civil court case uncovered fraudulent activity through the examination of business records noted in a “cash book” the business owner carried around with him, which were effectively just scraps of paper containing handwritten, coded notes.

The case involved the director of Rocco Fashion Ltd, Rostum Nagra, who was accused of stealing another firm belonging to a business associate and transferring all the assets to Rocco Fashion.

Crucially, he also took over the relationship the business had with its biggest customer, Select Fashion, which owns around 170 shops across the UK.

When Select Fashion placed an order with Rocco Fashion, Mr Nagra would claim the garments had been made by a known garment factory but would actually commission a ‘cut, make and trim’ (CMT) supplier to provide them.

CMTs make garments very cheaply and sometimes achieve this by paying their workers less than the minimum wage. He would pay this supplier in cash, not recording the transaction, but would provide an invoice for a much higher price, which would include a 20 per cent VAT charge on top.

Mr Nagra would pay the inflated amount into the bank account of one of a network of shell companies he is alleged to have controlled.

Almost immediately, the money would then be withdrawn from the bank account in cash and returned to Mr Nagra, apart from – typically – half the VAT, which would go to pay off various accomplices.

Mr Nagra would be left with a VAT receipt that looked above board for the tax authorities. The shell supplier company would often fold after a short time with its VAT liabilities unpaid.

Roger Isaacs, Forensic Partner at Milsted Langdon, said: “This type of fraud is relatively common as is the keeping of a record of unlawful transactions.  In any illegal conspiracy, the conspirators will need to keep track of their ill-gotten gains so as to work out how to divide them between the perpetrators.

“Often the records are kept in code and may never see the light of day.  However if forensic accountants are able to access these records, they can sometimes be the key to unlocking even the most complex webs of financial transactions.

In one extreme case the records were not only kept in what was literally a little black book but the first page of the book was neatly headed with the handwritten title “Little Black Book”, which had been neatly double underlined!”

Posted in The Forensic Blog.