False accounting fraud

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.

Reporting fraud

If you're a victim of fraud that is a crime in progress and you need an immediate police response dial 999.

If it is a non-emergency situation,

call Action Fraud on 0300 123 2040.

You can also report fraud or find further advice and information on the Action Fraud website.