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False accounting fraud

False accounting fraud happens when company assets are overstated or liabilities are understated in order to make a business appear financially stronger than it really is.

False accounting fraud involves an employee or an organisation altering, destroying or defacing any account; or presenting accounts from an individual or an organisation so they don’t reflect their true value or the financial activities of that company.

False accounting can take place for a number of reasons:

  • 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.

Are you a victim of false accounting fraud?

It can be hard to discover acts of falsifying accounts, particularly if you are managing an organisation. Some examples of false accounting fraud include: 

  • an employee making inflated expenses claims
  • a customer or an employee falsifying accounts in order to steal money
  • an employee using false accounting to cover up losses built up through trading or fraudulent activity. Unless you are alerted to the problem, you won’t know about any losses, or the criminal activity that’s causing them
  • 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 you do if you’ve been a victim of false accounting fraud?

  • False accounting is a criminal offence. Regardless of how much money is involved, you should report the fraud to Action Fraud
  • Your organisation might also consider taking action to recover any losses from employees who committed the fraud.
  • You need to find out the nature and extent of any losses. This can either be done by your in-house accountants or by external consultants, but don’t wait until they have finished their work before you report the fraud.

Protect yourself against false accounting fraud

Your organisation can take the following steps to help protect itself from false accounting:

  • vet employees’ CVs and references thoroughly
  • put a whistleblowing policy in place
  • control access to buildings and systems using unique identification and passwords
  • restrict and closely monitor access to sensitive information
  • impose clear segregation of duties
  • consider job rotation
  • use tiered authority and signature levels for payments
  • reconcile  bank statements and other accounts on a regular basis
  • audit processes and procedures from time to time
  • promote a culture of fraud awareness among staff
  • adopt, and rigorously implement, a zero tolerance policy towards employee fraud
  • have a clear response plan in place in case fraud is discovered.

If fraud has been committed, report it to Action Fraud.