Financial and management accounts

False accounting


False accounting is fraudulent and usually occurs when a business or employee:

  • deliberately records false financial information
  • changes, defaces or destroys records
  • exaggerates the business' assets or understates its liabilities

In this way, an employee who adds only a few pounds to an expenses claim could constitute false accounting, even though it might not seriously affect your finances. More serious fraud could mean that your business suffers major financial losses, or that it has been trading while insolvent.

What to do if you think an employee has been falsifying accounts

You should immediately report false accounting to Action Fraud, who may then pass it to the police to investigate. Your business can also take action to recover any losses if an employee was involved.

To work out how much your business has lost and how the fraud occurred, you might need to use an accountant or auditor. 

You may suspend an employee while the investigations are carried out, but only if their contract of employment allows it - see disciplinary procedures, hearings and appeals.

Reduce the risk of false accounting

Common sense and sound business practices will help you to protect your business against the risks of theft and fraud. For example, you should:

  • maintain thorough recruitment procedures and carry out pre-employment checks 
  • put in place a whistle-blowing policy and try to encourage a culture of fraud awareness across the business
  • have a 'zero tolerance' approach to employee theft and fraud and clearly state this in employees' terms and conditions
  • restrict access to financial information and divide duties so that no single person is responsible for all accounts
  • check bank statements and other accounts - look into any unusual transactions or discrepancies, and audit processes and procedures regularly
  • commission a registered auditor to conduct an external audit to examine the business' financial report to check that they show a true and fair view of the business' financial performance
  • undertake an assurance report to review the entire business' accounts, but with specific aspects checked where necessary