Are your invoicing processes open to internal fraud?

The sentencing at the Royal Courts of Roy Jeanne and Michael Timms for their roles in a multi-million pound fraud are a stark reminder to all firms that internal fraud can happen at any business.

In this case Roy Jeanne was an employee of Jersey Mutual Insurance Society.  Jersey Mutual was established in 1869 and is a regulated entity under the Insurance Business (Jersey) Law 1996, subject to the Jersey Financial Services Commission, with all the external scrutiny that brings and the requirements under the Codes of Practice for robust business and financial processes.  But the crimes carried out by Mr Jeanne between 2004 and 2017 went undetected until 2018.

Mr Jeanne rose to a senior position within Jersey Mutual, including the position of General Manager.  He was assisted in his criminal enterprise by Michael Timms, who was a supplier to Jersey Mutual.  Part of the crime involved Mr Timms submitting false invoices which Mr Jeanne was able to ensure were authorised.  Payment for the false invoices were in fact directed to bank accounts controlled by Mr Jeanne. 

Internal fraud like this occurs because dishonest employees are able to exploit weaknesses in internal processes and internal audit processes are not robust enough to detect them quickly. 

Firms should therefore regularly review their processes, having the intention to identify weaknesses and the courage to address them.  There may be a temptation to believe that protecting the reputation of the firm means that no weakness should be admitted but such an attitude can give internal fraud the opportunity to flourish.  External reviews can help add to the robustness of processes and discourage dishonest employees from taking the chance of being caught.

In the Jeanne and Timms case Mr Jeanne gambled much of his ill gotten gains and firms should also be alive to the potential for gambling addiction to make normally honest employees act out of character to feed their addiction.  Strong personnel processes and adequately resourced HR teams can help identify and support colleagues to avoid starting down this path.

The case also highlights that Jersey now has a better resourced unit, utilising both Jersey Police and Law Officers Department, and this will both uncover more crimes and lead to greater deterrence in the future.

However matters were only referred to Jersey Police following an internal review by Jersey Mutual.  It is therefore critical that where any potential concerns regarding the validity of invoicing, payments, clients or other financial disbursement are raised that they are effectively reviewed by highly skilled professionals with a focus on financial crime.

Amati Law’s experts regularly assist Jersey businesses in guiding them through regulatory issues.

If you believe that your firm would benefit from advice on any of the matters raised in this briefing please contact James Mews, Managing Partner.