Fraud Issues for members in business

This helpsheet has been issued by ICAEW’s Fraud Advisory Helpline to help ICAEW business members to navigate some of the issues that may arise if they discover fraud within their employing organisation. This helpsheet also addresses the requirements of the ICAEW Code of Ethics.

A professional accountant has a responsibility to further the legitimate objectives of the accountant’s employer, but also has a continuing obligation to comply with the law and uphold high ethical standards, even in difficult circumstances.

Members may also wish to refer to the following related helpsheets and guidance:

• Disclosure of confidential information (for members in business)
• The ethics of a chartered accountant in business
• Ethical problems – framework for resolution
• The ICAEW Fraud Advisory Helpline
• CCAB – Phishing and Insider Fraud

A professional accountant is asked to prepare an application for their employer but is aware that some highly inflated figures are being included.

Paragraph R111.2 of the ICAEW Code of Ethics states:

A professional accountant shall not knowingly be associated with reports, returns, communications or other information where the accountant believes that the information:

(a) Contains a materially false or misleading statement;
(b) Contains statements or information provided recklessly; or
(c) Omits or obscures required information where such omission or obscurity would be misleading.

Where a professional accountant becomes aware of having been associated with such information, paragraph R111.3 requires them to take steps to be disassociated from that information.

Furthermore, when preparing or presenting information, a professional accountant shall prepare or present the information in a manner that is intended neither to mislead nor to influence contractual or regulatory outcomes inappropriately and must exercise professional judgement to represent the facts accurately and completely in all material respects (paragraph R220.4).

As the professional accountant knows or has reason to believe that the application may be fraudulent, they must not submit it as it currently stands. The professional accountant should follow the guidance contained within Section 220 Preparation and presentation of information and Section 260 Responding to non-compliance with laws and regulations of the ICAEW Code of Ethics.

In doing so, the professional accountant should discuss their concerns with the appropriate level(s) of management within their organisation. It may be that the employer is simply relying on an overly optimistic budget and the information can be easily corrected. If the accountant continues to come under pressure to submit an application, they believe to be misleading they should escalate the matter within the employing organisation, in accordance with the employer’s policies, explaining the risks of such an application. If the professional accountant determines that the application will not be amended, they shall refuse to submit it. It may be appropriate for the accountant to seek legal advice to protect their position. They may be able to receive some legal advice free of charge from CABA and/or ACAS.

A professional accountant in business owes a duty of confidentiality to their employer, as set out in Section 114 of the ICAEW Code of Ethics. They must not, therefore disclose confidential information outside the employing organisation without proper and specific authority, unless there is a legal or professional duty or right to disclose (guidance is available in the helpsheet Disclosure of confidential information (for members in business). If, for example, the professional accountant becomes aware that their employer goes ahead and does submit a fraudulent loan application and receives the proceeds, they will not have an obligation to make a suspicious activity report (SAR) unless the business operates within a regulated sector for the purpose of anti-money laundering legislation.

A professional accountant in the finance department of a small business has recently been experiencing an issue around accounts payable. One particular supplier has started requesting that payments are made to a different, but apparently associated business.

The professional accountant is aware that some of these recent invoices have already been paid and some of the other invoice numbers appear to be duplicated. As such they are now becoming more cautious.

They are right to be so. There are some ‘red flags’ associated with fraud in this scenario. HMRC could refuse a VAT reclaim if it believes that the employing organisation knew or should have known of a connection to fraud, and it recommends that checks are carried out on the supplier in this context.

Such checks could include checking that VAT registrations are valid, establishing that the reasons for the change are valid, or insisting on contact with the ‘associated’ business, as well as querying the duplicated invoices.

If the outcome of the above is unsatisfactory the response should be dictated by the policies and procedures of the employing entity but may well include an insistence that payment arrangements continue as previously agreed, or a termination of the business relationship. Above all, it is important that the professional accountant protects the employing organisation as best they can, and does not allow pressure from others to result in a breach of the fundamental principles (Section 270 of the ICAEW Code of Ethics).

The professional accountant will not have an obligation to make a suspicious activity report (SAR) unless the business operates within a regulated sector for the purpose of anti-money laundering legislation. However the employing organisation might choose to report suspected VAT fraud to HMRC.

This should be discussed internally to ensure that those at appropriate level of authority can make an informed decision regarding authority to disclose. Members may wish to refer to Professional Conduct in Relation to Taxation for further guidance.

Members should also be aware that HMRC may approach businesses in supply chains where it considers they knew or should have known of a connection with fraud.

A professional accountant in the finance department of a small business has recently been experiencing an issue around accounts payable. One particular supplier has started requesting that payments are made to a different, but apparently associated business. These requests have been accompanied by a greater level of pressure regarding speed of payment.

The professional accountant is aware that some of these recent invoices have already been paid but they are now becoming more cautious, in particular, because the supplier’s e-mails have also become noticeably briefer and lack the usual greetings and etiquette. Closer examination reveal that latest exchange in the chain of correspondence was initiated from an unfamiliar e-mail address.

The professional accountant is right be cautious. It is important to ensure that those you are dealing with are who they say they are. Fraudsters can assume the identity of a known or established supplier and request that the bank account details that you have on file are ‘updated’.

In some cases, chains of correspondence can be intercepted over a period of weeks or months, and the addressee list manipulated so that the fraudster effectively hijacks the ongoing correspondence from the original party.

In this case the professional should cease payments until contact is made with the supplier to verify the changes. If it is established that the employing organisation has been a victim of fraud, the professional accountant will not have an obligation to make a suspicious activity report (SAR) unless the business operates within a regulated sector for the purpose of anti-money laundering legislation. However, the employing organisation might choose to report to Action Fraud.

Further guidance can be found in the Fraud Advisory Panel help-sheet on Invoice Fraud.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Fraud Advisory Helpline anonymously on +44 (0)1908 248 250.