False accounting fraud

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

It’s important to recognise that a fraud can come from anywhere, including:

• staff members
• customers
• suppliers
• third parties, unconnected to the business

There is no single solution to prevent all business fraud, but the information below will help you identify the most common types and take action to protect yourself, your staff and your business.

Policy

Having protocols and policies in place for dealing with fraud will help you establish a good grounding for identifying it and minimising your risk of becoming a victim. You should emphasise a zero-tolerance approach to criminal breaches of your policies and the law surrounding it.

Prevent and Detect

In order to detect fraud you need to have effective systems and processes in place covering all aspects of your business. Consider regular, routine planned audits. Conduct irregular unplanned audits (i.e. where the staff and areas of your business are not given prior notification).
Have a separate "whistle blowing" policy so that members of staff know exactly who to report any concerns and suspicions to, how they should do it and what levels of protection they can expect.

Investigate

Once you have identified a fraud you will need to formulate a clear strategy to deal with it. The first thing to consider is the extent of the fraud. Do not assume you have identified the full extent straight away. For example, if it is one member of staff that is suspected, consider other staff members they work with. Consider whether you should take action straight away or monitor and investigate further.

Risk Manage

This should be a continual process and form part of your overall fraud strategy.
Take a risk based approach, i.e. assess the risks - the likelihood of something happening and the impact it could have on your business. If resources are limited then take action to mitigate the threats that have the most risk.

For more information, please visit: Business fraud and how to prevent it | City of London Police

If you have made a payment: Inform your bank as soon as possible, they can help you prevent any further losses. Monitor your bank statements regularly for any unusual activity.

Review: Perform a review of your internal processes to determine whether any changes could be made to prevent similar types of fraudulent activity, or improve your detection of them.