Author: Azizur Rahman
3 February 2015
4 min read
Accountants are often the first to be blamed in fraud cases. Aziz Rahman looks at why this is…and how accountants can take steps to safeguard themselves against accusations.
A quick Google search produces a mountain of information about accountants. However, not all of it makes particularly good reading.
Just a matter of weeks ago, for example, some of the accountancy trade press and other business media were reporting that an accountant was among four people arrested in dawn raids on suspicion of a £2.2M VAT fraud. According to the reports, the four men arrested are from Essex and Hertfordshire and set up an elaborate scheme of subcontractors within the civil engineering industry with what HM Revenue and Customs (HMRC) called the “sole intention of defrauding HMRC of VAT and PAYE’’. HMRC went on to talk in emotive terms of their suspicions that this was a well-organised and professional attempt to steal millions that would have otherwise been used to fund the UK’s vital public services. The reports explained that six houses were searched and that computers, business records and mobile phones were seized for forensic examination and that the men arrested have been bailed until March next year. And yet it is only the accountant whose occupation is revealed.
Accountants, it would appear, are fair game for the authorities. It is an unfortunate aspect of their professional life that they are often routinely arrested when a financial investigation begins. The investigators regularly make the assumption that it is the accountants who – if they are not the perpetrators of the alleged crime – at least would or should have known about it. They are, after all, the money men, the bean counters – the people most likely to know if the books are being cooked.
It is an argument that is understandable. The accountants are the ones who look after the figures, provide the data that drives the big decisions in a company and are often treated with deference within a company by even the most senior figures. They are the ones with the most comprehensive overview of the financial comings and goings in any company. As a result, it is the accountant’s views that often carry the most weight when a company is looking to carry out a health check on its finances. And, as a consequence of this, the accountants are the ones who often face the most pointed questions when wrongdoing is suspected.
In investigations into financial wrongdoing, those looking to build a prosecution case are often only too willing to claim that the accountant who did not flag up any wrongdoing must have somehow been involved in it. They are the ones who have the all-important figures on their desks day in, day out. How could they have failed to spot what was in front of them?
The answer to that question has a number of aspects. We represent accountants who find themselves in such circumstances and the situation is rarely as clear-cut as the investigating agencies would have us all believe. Yes, accountants are the ones who “do the books’’ and are immersed in the figures. But that does not make the prevention of fraud in a company their responsibility alone. Fraud prevention in a company has to be the responsibility of everyone working for it – or at least the senior decision makers. Taking the view that nothing needs to be done to prevent fraud because anything untoward will be spotted by the accountant is a dangerous game to play. And a very unfair one.
Any company serious about fraud prevention has to devise and implement a policy that ensures the risk of it happening is minimised. Staff have to be fully aware of their responsibilities to report any suspicions they may have. A proper system of checks and controls is the only way to prevent fraud. Hoping the accountant can spot it is no way to try and eradicate fraud. Figures show that companies lose an average of 7% of their annual turnover to fraud and that up to 85% of companies suffer from it in any given year. The scale of it is large but that does not mean it is obvious to spot – if it was, no one would fall victim to it. It is fair to say that any accountant would not know what they should be on the look-out for unless they were given a detailed briefing by someone with serious suspicions.
Having helped many companies devise anti-fraud strategies, we know that such action requires everyone involved taking a detailed overview of a firm’s workings. Failing to take this important step means that it is highly unlikely that the risks of fraud will be identified, meaning the company will remain vulnerable. Devising an anti-fraud strategy may even help the accountant know what to look for when it comes to spotting signs of potential wrongdoing. But without such a strategy, it is ridiculously optimistic to expect accountants to have some sort of in-built sixth sense to spot fraud.
But what can accountants do, on a personal level, to minimise the chances of them being suspected of wrongdoing? What steps can they take to help defend themselves should investigators come knocking? A company’s anti-fraud policy will go a long way to reducing the likelihood of such an event but accountants can also adopt a few simple practices to protect their own reputations.
Whether employed solely by one company or working for a variety of clients, accountants must keep clear, detailed records of all contact they have with those employing them. This may sound a little precise or obsessive but it can be important if, at a later date, the nature of the accountant-client relationship comes under investigation. Detailed file notes are key. On a similar note, it pays for an accountant to learn about their clients. The exact nature of a client’s business, the patterns that can be seen in their finances and the explanations they give to an accountant’s questions about their financial affairs can all be important indicators of the legality or otherwise of their business. And should either party come under investigation, that legality will be crucial for them both.
Certain aspects of the law also have to be observed if an accountant is to avoid any problems associated with their clients. For example, familiarity with the money laundering aspects of the Proceeds of Crime Act, knowledge of the Money Laundering Regulations, not to mention legislation regarding company accounts and tax matters – all are essential. Not only for ensuring they can carry out the role of an accountant effectively but also as a safeguard against unwittingly becoming involved in wrongdoing. Accountants do not have the benefit of legal professional privilege with their clients that lawyers do, so there can be no cushion of confidentiality.
Accountants’ relationships with their clients are out in the open, entirely visible to the authorities. They need to take steps to make sure there is nothing to see that arouses the suspicions of the investigators.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.