A managing director and an administration manager of a healthcare services company based in Salford, Manchester have been convicted of fraud on a London finance company totalling over £1.2 million.
Christopher Lynch, administration manager of Insight (1997) Ltd ("Insight") was yesterday found guilty at Manchester Crown Court of conspiring to defraud Resource Partners PLC. The company's managing director, James Frauts, pleaded guilty at earlier hearings to conspiracy to defraud, fraudulent trading and false accounting. The offences span from May 2002 to July 2004. The defendants are to be sentenced on 3 December 2010.
Background
James Frauts (62) and Christopher Lynch (59) operated Insight, a company based in Salford, Manchester that provided specialist healthcare services to young people and adults who suffered from Autism Spectrum Disorder [ASD].
Local authorities in the North-West of England paid Insight for the provision of specialist care for individuals who suffered from ASD and related conditions such as Aspergers syndrome. The local authorities concerned are; Stockport Metropolitan Borough Council, Rochdale Borough Council, Lancashire County Council, Bury Metropolitan Council and Warrington Borough Council.
By 2004 Insight had grown into a substantial business in its sector with an annual turnover of around £3 million, employing over 150 people and operating 13 care homes.
Payments to Insight were made through Resource Partners PLC, ("Resource") a finance company that provides funding to companies undertaking private healthcare by making immediate payments to them on their invoices to local authorities for the care work they undertook. Rather than Insight having to wait on payments from local authorities, Resource paid Insight upfront on each invoice and then Resource would wait for payment on that invoice from the local authority. Resource made their money by charging Insight a fee for the service.
The investigation into Insight exposed its finances to be in a mess with the company owing money to suppliers. The fraud started in 2002 with the two defendants repeatedly deceiving Resource by supplying forged invoices and creating false accounting documents for care services that had not been provided. They did this in two ways. They continued to send invoices to Resource for real people that Insight had stopped caring for and they sent invoices for people that Insight had never cared for. Over 170 false invoices were identified relating to 12 individuals. These 170 false invoices represented 45% of the bills sent by Insight to the five local authorities.
Insight eventually collapsed due to cash flow difficulties and Resource had paid out over £1.2 million on false invoices. Some of these losses were then passed onto the local authorities who had to take money out of their social service budgets. Social services departments also had to ensure that the people Insight were caring for would not have to suffer unduly due to the dishonest way the company was run before its collapse.
Proceedings
The case was referred to the SFO in October 2005 by the Greater Manchester Police.
James Frauts was charged in December 2009 after being extradited from Canada. He pleaded guilty on 19 March 2010 to one count of fraudulent trading and twelve counts of false accounting. On 6 September 2010 he also pleaded to one count of conspiracy to defraud.
Christopher Lynch was charged in March 2010. He was convicted of conspiracy to defraud on 4 October after a two week trial at Manchester Crown Court.
