What does false accounting involve?
False accounting involves an employee or an organisation
altering, destroying or defacing any account; or
presenting accounts from an individual or an organisation so they
do not reflect their true value or financial activities.
This type of fraud can include overstating
assets and/or understating liabilities.
False accounting can take place for a number of reasons, for
example:
- to obtain additional financing from a
bank
- to report unrealistic profits
- to inflate the share price
- to hide losses
- to attract customers by appearing to be more
successful than you are
- to achieve a performance-related bonus
- to cover up theft.
Whatever the reasons for false accounting, they are all
motivated by the need to falsify records, alter figures or possibly
keep two sets of financial accounts.
How does false accounting affect my organisation?
False accounting is a type of theft. A customer or an employee
may falsify accounts with the specific purpose of stealing
money.
False accounting can be used to cover up losses
built up through trading or fraudulent activity. So, unless they
are alerted to the problem, an organisation’s management won’t know
about any losses or the criminal activity causing them.
At one end of the scale, false accounting may involve an
employee inflating an expenses claim for a few
pounds. At the extreme end of the scale, the fraud may mean that a
company has incurred serious financial losses and/or is
trading while insolvent.
What should I do?
False accounting is a criminal offence. Regardless of how much
money is involved, the fraud should be reported to the
National Fraud Reporting Centre (NFRC). From here, the
case may be referred to police for further investigation depending
on the circumstances surrounding it. In addition, your organisation
might consider taking action to recover any losses
from employees who committed the fraud.
As a first step, you must determine the nature
and extent of any losses. You might choose to give this task to
accountants inside your organisation or to outside consultants.
Either way, do not wait until they have completed their work before
reporting the fraud.
Your organisation can seek to protect itself from false
accounting by:
- Vetting employees’ CVs and references
thoroughly
- Implementing a whistle-blowing policy
- Controlling access to buildings and systems
using unique identification and passwords
- Restricting and closely monitoring access to
sensitive information
- Imposing clear segregation of duties
- Considering job rotation
- Using tiered authority and signature levels
for payments
- Regularly reconciling bank statements and
other accounts
- Periodically auditing processes and
procedures
- Promoting a culture of fraud awareness among
staff
- Adopting and rigorously implementing a zero tolerance
policy towards employee fraud
- Having a clear response plan in place in case
fraud is discovered.