The Offence of a Financial Fraud

Derek Williamson, Avis Global Energy Ltd

The Offence of a Financial Fraud

Fraud covers a wide range of offences, from manipulation of basic accounting records, through making false insurance claims, to making benefit claims to which one is not entitled. It also includes bribery and corruption.

Historically the accounting manipulation was hand written and comprised of making false prime entries or amending those already entered. A common cause of accounting fraud was the misappropriation of cash. This could take the form of failing to ring up cash takings in a retail shop of raising false supplier’s invoices.

These actions occurred for a number of reasons:

A)      Audit finding are deemed to be errors and irregularities

B)      Internal controls are not enforced or often comprised by higher authorities

C)      Individual’s behaviour significantly changes

D)      The above is because of a large personal debt or financial losses and a drive for personal gain

E)      Missing documents or only photocopies available

F)       Discrepancies in accounting records

G)     Missing inventory or missing assets

H)     Excessive credit notes

I)        Alterations of documents

J)        Transactions occurring out of sync

K)      An employee having control of a process from start to finish with no segregation of duties and no authorities checking their actions.

Growing areas of fraud are the share scams or boiler room frauds. These are where partners re selling shares to investors in companies which are usually fake or not trading. These activities are often carried on off shore by phone using a ‘post restaurant’ address in the UK. All too often potential investors fail to carry basic checks on the alleged company or the ‘brokers’ via the internet.

Another area of internet fraud is the ‘Ponzi’ or ‘Pyramid scheme.’ Here the investor is offered a higher rate of return then the normal (say at 30% when 10% might be reasonable). The fraudsters then use the investor’s money to pay previous investors to convince them that the scheme is successful. In reality is it a short term fix to create a façade whilst most of the money is stolen.

Asset stopping is another way of defrauding creditors and shareholders. Here the director transfers the assets of a company with large liabilities that cannot be met resulting in the company being liquidated.

Share ramping has proven popular over the last few years. This is where the criminals influence the share price of a company and then take advantage of it. This is usually done by bringing a company to the market with false expectations of its profitability. The alternative is to buy shares in the company and then start a rumour that the company is being taken over. When the shares rise in price, they are sold at a profit which is fraud on the shareholders.

Derek Williamson Avis Global Energy Ltd

Accountant, Auditor and Tax Consultant; specialising in "Cloud" based Accountancy and Forensic Accountancy. Clients require advice on ensuring that their systems are fully "Making Tax Digital"…