In this digital age we live in, there are bound to be ways individuals try to cheat the system which can lead to detrimental consequences. Accounting fraud is the illegal alteration of a company’s financial statements in order to manipulate a company’s apparent health or to hide profits or losses. Continue to read on to learn more about how you can avoid false accounting fraud from happening in your own business.
What is accounting fraud?
According to the National Fraud & Cyber Crime Reporting Centre ‘Action Fraud’, false accounting fraud happens when company assets are ‘overstated’ or liabilities are ‘understated’. This is in order to make a business appear financially stronger than it really is. There are many motivations that constitute as to why people commit fraud in this way. For example:
- In order to hide/cover up losses in the business
- Conceal theft/withdrawing company funds outside business-related reasons
- To obtain additional funding from the bank, such as loans
- Reporting unrealistic profits to account for illegitimate finances
- To attract investors by appearing to have more successful sales than you do
Whatever the reasons for committing accounting fraud, it requires the illegal falsification of records and altercation of numbers. The consequences can include prison sentences for those held responsible as well as incurring serious financial losses.
How to protect yourself and avoid false accounting fraud
Although it can be difficult to instantly recognise fraudulent activity with your accounts, here are 7 steps you can take to help protect yourself from these crimes.
Your organisation could:
- Implement a whistle blowing policy- this allows discretion for colleagues when it comes to reporting suspicious behavior.
- Restrict and closely monitor who has access to sensitive information- we recommend hiring a trustworthy accountant to take care of your financial data.
- Take the time to go through and complete regular checks of your bank statements and other accounts to see if they match up to recorded data.
- Educate and promote a culture of fraud awareness/courses among staff members.
- Reinforce a strict zero tolerance policy towards employee fraud.
- Make sure access to certain computers/buildings are controlled through unique identification processes and passwords.
- Know who works for/with you – it is important you do employee background checks through confirming the validity of their CV and references.
What should you do if you become a victim of false accounting fraud?
Remember, regardless of how much money is involved this is a criminal offence. Your first instinct should be to report the fraud to Action Fraud. If an employee has committed the crime, you might consider taking legal action to recover any losses as result of their illegal activity. To better understand the nature and extent of these losses, having an external accountant who can examine what actions have been taken is very helpful to solving and recovering the damage.
How we can help
Here at Carrington Blake Accountancy, we pride ourselves in having an expert team of accountants who are genuinely passionate about what they do. This passion compels us to provide you with impeccable service, with a strong focus on presenting each client with stress-free and transparent account handling. We take care of your finances, advise you on what is best for your specific requirements, and help you identify any suspicious activity in advance. Contact us today to learn more about the vast services we offer and if you have any further questions.