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Fraud and financial crime

Financial crimes include fraud, money laundering, terrorist financing and bribery. Any organisation can be affected by financial crimes, with the level of risk affected by size, industry, location, supply chain complexity and a range of other factors.

Management accountants are key to protecting organisations. Your financial literacy, understanding of risk, inquiring mindset and commitment to ethics are all valuable in the fight against financial crime.

Fraud resources

National Crime Agency (UK) fraud resources

The UK's National Crime Agency publishes up to date information on fraud.

Action Fraud (UK)

Action Fraud is the UK's fraud and cyber crime reporting centre. You can report fraud, as well as get advice from fraud and cyber crime experts.

USA Government fraud advice

Read advice from the Government of the USA on scams and frauds. Find out about common schemes and how you can protect yourself.

Spot the red flags game

Test out your fraud awareness with a quick game. How many red flags can you spot on a purchase order in 1 minute?

Business fraud and how to prevent it

Read the City of London Police guidance on business fraud, which specifically mentions the risk to SMEs and ways in which businesses can protect against fraud.

Guidance on trading whilst insolvent

Trading While Insolvent

Whether you are a Member in Business or a Member in Practice, you may be faced with an employer or client decision to continue to trade despite the company being insolvent. As a management accountant, you are also likely to be in a good position to see that the financial health of a company seems to be taking a downturn. Senior decision makers in that company may be reluctant to accept the situation and it may be up to you to initiate a difficult conversation or provide advice that will not be welcomed. You have an obligation under the CIMA Code of Ethics to provide a professional service and work in the best interest of the business. Sometimes the best interest may be the dissolution of that business, and this can cause professional friction between you and your employer/client.

Use evidence to your advantage

Business decisions should always be based on evidence. As a management accountant you will need to ensure you have adequate information on which to base your decisions and advice, in order to comply with the fundamental principle of Professional Competence and Due Care. You will be used to forecasting and you should be able to ascertain whether business activity is being undertaken in a way that makes sense against that forecast and can therefore be justified. Alternatively, the available information may enable you to explain that the company is beyond recovery and something needs to be done.

Remain professional

If your advice is met with resistance, remember that hope can often be powerful motivator. For instance, a company may have struggled during the global pandemic and hope that the easing of restrictions will lead to recovery may make its directors reluctant to accept your advice about the reality of the situation. Conversations may become emotional, even heated, but remaining professional and using a direct communication style will help decision makers understand the situation. It is against the law in the UK (and many other jurisdictions) for a company to continue to trade when it can no longer pay its debts when they become due or when its liabilities outweigh its assets. Critically, if this point arrives, the directors’ responsibilities shift from the interests of the company’s shareholders to the interests of its creditors. Continuing to trade while the company is insolvent may make directors personally liable for the company’s debts. You should therefore explain the possible consequences of failing to act on your advice and check that the directors and management have understood you.

Finding the best way forward

You may wish to suggest a strategy for business recovery or insolvency with your employer/client. This may include contacting the relevant tax authority (HMRC in the UK) to discuss an installment plan for any unpaid tax and to notify them of a possible insolvency. You my wish to encourage the directors to keep all stakeholders informed - e.g. other directors, investors, beneficial owners and any others who may need to know.

Protect your employer/client

If you believe that insolvency is the only realistic outcome, you may be able to convince your directors that it is time to wind up the company and/or appoint an insolvency practitioner to enable them to limit the damage. You may wish to make them aware that if the company became insolvent the decisions of the directors would be under scrutiny and they could face further action if their decision making was found to be unsound in the run-up to formal insolvency.

Protect yourself

Whilst your obligation is to the business, this does not mean that you should compromise your professionalism. You ensure that you have full records, accountants, forecasts and a record of all the advice you have given. The best way to document your advice is to keep copies of all emails, minutes of meetings and to reflect back any conversations that may have taken place in writing. Similarly you can keep screenshots of text or Whatsapp messages (both received and sent). Failure to retain these records leaves you open to an accusation of wilful complicity if the company is investigated later on. Subject to any duty of confidentiality or other contractual duties to which you may be subject, you may wish to preserve such evidence if you leave your employment or disengage from your client.

Susceptibility to fraud

In times of desperation, the temptation to trade in unethical or fraudulent ways becomes ever more tempting as decision makers look for any opportunity to keep the company afloat. You should keep aware of any change in trading activity, so that you are in a position to advise against this. You may also have access to bank statements, invoices and supply chain information that could indicate a change in activity. You should ensure that you understand and comply with the laws that apply in your jurisdiction fully. Remember that if it feels wrong, then it probably is wrong, but ethical dilemmas are generally not straightforward. You can use the CIMA Ethical Dilemma Decision Tool to help you consider relevant factors and possible courses of action.

Disassociating from your employer or client

If you have tried and failed to convince your employer or client to take your advice, you may feel that you have no recourse but to disassociate. If you leave the employment or engagement during your official notice period, make sure you protect yourself by explaining clearly why you are doing this. You can emphasise that you have an obligation under your Code of Ethics to avoid being associated with illegal or unethical activity. The advice you have given will serve as evidence.

If you leave and you are concerned that fraud or money laundering is taking place you can make a report to the relevant authority. In the UK, CIMA may be able to refer you to our legal advice or business support helplines. Whilst CIMA cannot assist you with any employment proceedings, an initial conversation may help crystallise your thoughts and you can access low cost legal advice through Law Express.

This guidance above does not constitute legal advice and if you are in any doubt you should seek your own professional/legal advice.

CIMA Professional Standards
First Published May 2022

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