Investigating false accounting allegations

False accounting written on the side of a green ringbinder with calculator and pen

Investigating false accounting allegations

False accounting is a huge problem for businesses and consumers. Investigating false accounting cases requires forensic accountancy expertise to help collect evidence and support a case in a court of law.

What is false accounting?

False accounting fraud happens when a company’s assets are overstated or its liabilities are minimised to make a business appear financially stronger than it is.

This type of fraud can involve an organisation or an employee taking action to alter, deface or destroy an account. They may present accounts in such a way that they distort the real value of the company or, in some way, misrepresent the company’s financial activities.

While there can many different aspects to false accounting, under section 17 of the Theft Act 1968, it is defined as an offence where an individual intentionally falsified, alters or submits false, deceptive or inaccurate records for particular accounting purposes. Usually, this will be to make the company’s performance appear significantly stronger than it is.

Why does it take place?

False accounting is motivated by several different reasons. These include, but are not limited to:

  • Inflating the company share price or reporting unrealistic profits
  • Obtaining additional financing from a bank
  • Attempting to hide losses or to attract customers by appearing more financially successful
  • Covering up a theft

In some cases, two sets of financial accounts may be kept and often motivated by the need to distort records or alter figures.

Who can be charged for false accounting?

Anyone involved can be charged, whether the crime was carried out by a single individual acting alone or as part of a larger effort. Sometimes, more junior employees may be coerced or threatened into fraudulent accounting practices. This can be taken into account when an investigation takes place.

False accounting can be committed by any employee within the business, and senior staff, officers or directors of a company may be held liable for false accounting carried out by their employees.

Any investigation into false accounting will examine where responsibility for the crime resides and who knew about what was taking place.

How is it investigated and what are the implications?

False accounting is regarded as serious fraud and as a result, will be investigated by HMRC or in some cases by the Serious Fraud Office (SFO).  Police have the power to arrest, detain and seize the personal and corporate property of any individuals who are suspected of false accounting.  The SFO can force suspects to provide any documentation that they believe is pertinent to the particular case.

A conviction can carry a maximum sentence of seven years in prison. As well as a custodial sentence, those convicted may also receive fines. Any company director found guilty may be disqualified from being a director or an officer for a specified period. If deemed appropriate, they may be required to pay compensation to any victims who suffered financial harm as a result of the false accounting. Those found guilty of criminal accounting will have a criminal record.

What evidence is collected?

The prosecution will collect evidence that is pertinent to the case and that supports the claim that the accused individual or individuals committed the crime beyond any reasonable doubt. As with any criminal trial, the onus is on the prosecution to build a convincing case based on the available evidence.

The financial records of the company will be thoroughly explored along with any associated documentation or communications. This evidence will usually be collated by a forensic accountant.

How a forensic accountant can help

A forensic accountant is usually employed to thoroughly investigate the company’s accounts and to identify any sign of fraudulent trading that might be used as evidence of guilt in a court of law. If you are a company director, then you must employ your forensic accountant to examine your accounts to look for anomalies.

Forensic accountants are used by both prosecution and defendants to get to the facts of the case. The defendant may wish to challenge some of the claims of the prosecution about the extent and scope of any accounting anomalies.

We’re experienced at getting to the bottom of false accounting cases. Bee-Lean Chew and our expert team are skilled at thoroughly investigating accounts and finding evidence of fraudulent activity.

Contact us today to find out more about our forensic accounting and litigation services. 

Bee Lean Chew
Partner at Wilder Coe
Bee provides her clients with a clear and understandable presentation of fact, in all matters relating to Forensic Accounting. As an experienced member of the Forensic Accounting team at Wilder Coe Ltd, Bee can support you with personal and corporate investigations.