False accounting allegations often arise when financial records, invoices, expenses, accounts or other business documents are said to have been deliberately altered, concealed or used to create a misleading picture.
Sometimes the issue is discovered internally by a business. In other cases, concerns emerge through an audit, a dispute between directors or shareholders, an employee complaint, insolvency, an HMRC enquiry or a wider fraud investigation.
The difficulty is that inaccurate accounts do not necessarily amount to criminal false accounting. Investigators need to consider who was responsible, what they knew, why records were created or changed and whether there was the required dishonesty and intention to gain or cause loss. False accounting can also overlap with other offences, including Fraud Act offences, theft, money laundering and tax offences.
Our specialist fraud and business crime lawyers advise both businesses which discover suspected false accounting and individuals facing allegations or investigation.
In our experience, false accounting investigations rarely turn on a single suspicious entry; they usually require us to reconstruct months or years of financial activity before the real picture emerges.
What is false accounting?
False accounting is an offence under section 17 of the Theft Act 1968.
Broadly, an offence can be committed where someone dishonestly, with a view to gain for themselves or another or with intent to cause another loss:
destroys, defaces, conceals or falsifies an account or a document or record made or required for an accounting purpose; or
when providing information, produces or uses an account or accounting record which they know is or may be misleading, false or deceptive in a material particular.
Importantly, the offence is wider than simply changing figures in formal company accounts. Section 17 also covers making or concurring in the making of a misleading, false or deceptive entry, or omitting a material particular from a document.
Examples of false accounting
The circumstances vary considerably, but allegations might involve:
creating fictitious invoices;
altering invoices or purchase orders;
recording sales which did not take place;
deliberately bringing revenue forward to improve results;
concealing liabilities or expenditure;
manipulating expenses;
creating false supplier records;
disguising payments to employees or directors;
altering payroll records;
falsifying stock or inventory figures;
manipulating records to conceal theft or misappropriation;
creating misleading records to obtain finance;
maintaining false records to conceal payments to third parties;
manipulating accounts connected with tax liabilities;
deliberately omitting transactions from accounting records; or
producing misleading accounting information to shareholders, lenders, auditors or other third parties.
False accounting can therefore range from an employee manipulating individual transactions to allegations concerning senior management and the financial reporting of an entire business.
We have found that allegations rarely fit neatly into one of these categories: our involvement in cases like this shows us that a matter often starts as a single suspicious invoice or expense claim and, once records are properly examined, develops into a far wider pattern of conduct.
A mistake is not necessarily false accounting
One of the important distinctions is between incorrect accounting and criminal false accounting.
Business records can be wrong for many reasons. There may be accounting errors, incomplete information, disputed accounting treatment, poor systems, misunderstandings between departments or decisions which appear questionable when examined with hindsight.
Section 17 requires dishonesty together with the required intention concerning gain or loss.
In a complex business, another important question can be who actually knew what. The person entering information, the manager approving it, a finance director and other directors may have very different levels of knowledge and involvement.
In our experience, this question of who knew what is very often where cases are won or lost, and we have found that a careful, document-led reconstruction of decision-making is essential before any view can be taken on culpability.
Does anybody actually need to lose money?
Not necessarily.
The offence is framed around acting dishonestly with a view to gain or with intent to cause loss. It does not require every intended financial consequence actually to have occurred before criminal liability can arise.
This can be important where false records are allegedly created to make a business appear more profitable, secure finance, conceal losses or achieve another financial objective, even if the plan is discovered before the intended benefit is fully obtained.
False accounting by employees
A common scenario is a business discovering suspicious activity involving an employee.
For example, an employee might allegedly have:
created fictitious suppliers;
submitted false expenses;
manipulated refunds;
altered payment details;
concealed unauthorised transactions; or
falsified records to disguise money being removed from the business.
The immediate reaction may be to dismiss the employee and report the matter. However, the business should first consider how best to secure evidence and establish what has happened.
Relevant evidence may extend beyond accounting records to emails, messaging systems, access logs, banking information and communications with customers or suppliers.
We understand from acting in internal fraud investigations that businesses which move too quickly to dismiss or confront a suspected employee, before evidence is secured, often lose the ability to establish the full picture or to recover losses.
What should a business owner do if false accounting is suspected?
If you discover suspicious accounting activity, avoid reaching conclusions before the evidence has been properly secured.
Important initial steps can include:
Preserve the evidence – secure accounting records, emails, messages, invoices and relevant electronic data.
Restrict further risk – consider whether access to bank accounts, accounting systems or payment facilities needs to be changed.
Establish the potential scale – what transactions, period and people may be involved?
Avoid altering records – preserve original material even where accounts subsequently need correcting.
Consider who should investigate – particularly where senior employees or directors may be implicated.
Take legal advice before interviews – an internal investigation can produce evidence subsequently relevant to criminal proceedings.
Consider reporting obligations – depending upon the circumstances, insurers, auditors, regulators, banks or law enforcement may need to be considered.
Consider recovery – criminal investigation does not necessarily recover the business's losses, so civil remedies may also need consideration.
The right response will depend on what has happened. A suspected £10,000 employee fraud requires a different approach from concerns that financial information has been manipulated at board level over several years.
Be careful about widening the investigation
False accounting is often not investigated in isolation.
Once financial records are examined, investigators may identify other potential offences or other individuals whose conduct requires investigation. The CPS expressly recognises overlap between fraud and offences including false accounting, money laundering and other economic crimes.
Depending on the evidence, an investigation might expand into allegations involving:
This is one reason both businesses and potential defendants should take care over what is said in internal investigations, correspondence and interviews under caution.
Our expetience is that investigations into false accounting frequently widen in scope once investigators start reviewing the underlying records, which is why we advise clients to treat the initial internal investigation with the same rigour as a criminal one.
False accounting and failure to prevent fraud
There is now an additional corporate dimension for larger organisations.
The failure to prevent fraud offence under the Economic Crime and Corporate Transparency Act 2023 applies to qualifying large organisations and includes false accounting under section 17 among the underlying fraud offences capable of engaging the legislation. The large-organisation thresholds include turnover, balance-sheet and employee tests.
This does not mean every instance of false accounting by an employee makes the organisation criminally liable. However, larger businesses should consider potential corporate liability alongside the position of the individual suspected of committing the underlying offence.
If you are accused of false accounting
False accounting allegations can be particularly difficult for directors, finance professionals and employees because investigators may be examining transactions and decisions stretching back several years.
Something which appears suspicious when viewed as an isolated accounting entry may have a legitimate explanation when considered in its proper commercial and accounting context.
Early questions may include:
Who created or altered the record?
Who authorised it?
What did you know at the time?
Were you relying on information supplied by somebody else?
Was the accounting treatment genuinely disputed?
Was the document actually misleading in a material respect?
What was the commercial reason for the transaction?
Is there evidence of dishonesty?
Was there an intention to make a gain or cause loss?
These distinctions can be central to the defence.
In our experience representing directors and finance professionals, the strongest defences are built by piecing together the commercial rationale for a transaction alongside the accounting entries themselves, rather than treating the two separately.
Possible defences to false accounting
Every case turns on its facts, but common defence issues include:
Dishonesty – can the prosecution establish that the defendant acted dishonestly?
Knowledge – did the individual know that the document was or might be misleading, false or deceptive?
Intent – was there really a view to gain or intention to cause loss?
Accounting judgment – is the dispute actually about legitimate accounting treatment rather than fraud?
Responsibility – who created, approved or supplied the information?
Materiality – was the alleged false or misleading information material?
Commercial context – does the wider transaction explain something which appears suspicious in isolation?
Evidence – do contemporaneous emails, records or other documents support the defendant's account?
A defence may therefore require detailed analysis of both the accounting evidence and how the business actually operated.
What are the penalties for false accounting?
False accounting is a serious criminal offence. The maximum sentence under section 17 of the Theft Act 1968 is seven years' imprisonment.
The actual sentence depends upon factors including culpability and harm. The Sentencing Council guideline considers matters such as the financial loss or intended loss and the offender's role and level of responsibility. The guideline range extends up to six years and six months' custody for the most serious false accounting cases.
A conviction can also have consequences beyond the sentence itself, particularly for directors and professionals, and confiscation proceedings under the Proceeds of Crime Act may become relevant in appropriate cases.
How we help businesses
Where a business believes it has been the victim of false accounting or internal fraud, our lawyers can help:
assess the suspected criminal conduct;
preserve and review evidence;
advise on internal investigations;
identify potential suspects and related offences;
advise on engagement with the police or other investigating authorities;
consider parallel civil recovery options;
advise where directors or senior management may themselves come under scrutiny; and
coordinate the criminal and commercial response where appropriate.
Early advice can be particularly valuable where the business does not yet know whether it is solely the victim of fraud or whether investigators may also scrutinise its systems, controls or management.
Our experience acting for businesses in this position has shown us that early, decisive action to secure evidence and take advice materially improves both the prospects of recovering losses and the credibility of any subsequent report to the police or regulators.
How we help individuals facing allegations
Our specialist fraud lawyers also advise directors, business owners, employees and professionals who are accused of false accounting.
We can assist from the earliest stages of an internal or criminal investigation, including:
assessing the allegations and available evidence;
advising before and attending interviews under caution;
identifying the relevant commercial and accounting context;
challenging allegations of dishonesty or knowledge;
making representations against charge where appropriate;
advising on related fraud, money laundering or regulatory allegations; and
defending proceedings if a prosecution follows.
Acting for both businesses affected by fraud and individuals accused of business crime gives us an understanding of how these cases develop from both sides of an investigation.
We understand, from having advised individuals through the full lifecycle of these cases, that the period before charge is often the most important stage at which to influence the outcome, whether through representations, disclosure requests or early engagement with investigators.
Speak to our false accounting fraud lawyers
If you have discovered suspected false accounting within your business, or you are personally facing allegations or investigation, early advice can help establish the issues, protect evidence and avoid decisions which make the position more difficult.
Contact our specialist fraud and business crime lawyers to discuss the circumstances and the appropriate next steps.
