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False accounting fraud

It refers to deliberately misleading the auditors, incorrectly making entries into the accounting records, fallacious changes made in the books, destroying authentic records, or exaggerating the firm's assets or liabilities to claim some benefit. 

Sometimes, small changes are made, which may not seriously affect the firm's finances. But in some cases, such changes in accounting can be serious. For example- if the business suffers a major loss and is insolvent but shows manipulated records and continues to trade. 

Suppose an employee has made a false report. In that case, it can be investigated by the authorities in the firm. In addition, they can act against the employee to recover losses if the accountant deliberately makes financial changes for personal benefits. They can be suspended, and audits can be made to identify the discrepancies.

How Does It Happen?

An employee or the organisation can indulge in actions like reporting unrealistic profits, showing inflated share prices, hiding losses, covering up theft, or showing performance to obtain additional financing from the lenders or investors, and appear more successful to the customers, or may depict a different data to evade tax liabilities.  

There can be many reasons for such actions. They can be motivated by changing the figures or keeping two different records for different purposes. 

What To Do If You Have Been a Victim?

  • It is a criminal offence regardless of the finances involved; one should report such crimes to the regulatory bodies, and the firm should take action against the employee responsible for such fraud and losses. 

  • The company should always try to find out the nature of losses. They should audit internally or hire external consultants and accountants to find discrepancies.

How To Reduce the Risk of Fake Accounting?

  • One should maintain a proper recruitment procedure and conduct pre-employment checks before hiring. 

  • The organisation should implement a zero-tolerance policy for fraud and inform employees about the terms and conditions.

  • They should restrict access to information and have job rotation to avoid giving authority to a single employee. Job rotation can move them from one department to another so that no single person controls all the activities and transactions.

  • They should reconcile bank statements and accounts regularly and audit processes and procedures occasionally. Auditing frequently helps identify unusual transactions or discrepancies, and the firm should regularly audit all the involved procedures.

  • They should hire an external auditor to investigate the transactions and provide assurance reports about the accounts with specific details. 

One should have a whistleblowing policy to report any such crimes. In addition, the firm should use multiple-step identification and access provisions to control buildings and administration devices like passwords and individual IDs. 

They should impose restrictions and monitor the flow of sensitive information. The firm should impose clear rules to determine duties and have a tiered authority and signature level for payments.

There should be a culture of awareness amongst staff, who should know how to report it. If you suspect any such fraud, report it to the regulatory bodies.

Date Published: Sep 12, 2023

Types of fraud

A-Z of fraud

To help understand which fraud you've been affected by, we've categorised them into an alphabetical list.

What is fraud and cyber crime?

Cybercrimes can be of two types. First, it can be cyber dependent, where the fraudsters use online devices to convince the victim to accept their offers.

Advance fee fraud

If you are trying to get a loan for a house or a car, they ask to meet the provider to get the financing arrangement and pay the finder's fee in advance.

Corporate fraud

Corporate frauds can be complicated, committed either by the firm or an individual. Nevertheless, it mostly involves cheating where the employee or the firm.

Individual fraud

There are many types of individual frauds related to advance fees, investments, insurance brokers, bogus tradespeople, Ponzi schemes, pension liberation.

Online fraud

Hence the number of cases of online fraud is increasing each year, and most such cases include – account takeover, direct frauds, or scams related domain names.

Identity fraud and identity theft

The criminal uses the stolen identity of another person living or deceased to conduct unlawful activities like obtaining goods or services in another's name.

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