2022 has seen some of the most shocking accounting fraud cases in history. To add to this, around 40% of large companies have agreed to committing accounting violations in the past. Businesses face legal scandals for financial misconduct, from crypto scams to money laundering.
In this article, we'll be looking at some of the most shocking cases of accounting fraud from 2022 and how you can adhere to financial regulations and protect your livelihood as a business owner.
The growing popularity of cryptocurrency saw many companies rake in billions overnight. It is estimated that 21% of American adults have owned some form of cryptocurrency as of 2022. FTX was the third largest cryptocurrency exchange, with over a million users.
In November 2022, the cryptocurrency trading platform committed major accounting fraud by misusing customer investments and falsifying accounts. As a result, the Bahamas-based firm filed for bankruptcy before seeking a bailout from private investors. Rival cryptocurrency exchange, Binance, offered to buy FTX but walked away after conducting their due diligence.
The sequence of events that led to Bankman-Fried’s arrest is as follows:
FTX collapsed ten days after suspicions arose about FTX’s sister company, Alameda Research. A news site leaked a report and balance sheets that stated Alameda Research was valued at $5 billion in FTT - the cryptocurrency created by FTX. Many celebrity investors lost money in the FTX scandal, including Shark Tank’s Kevin O’Leary and Tom Brady.
The Chinese company Luckin Coffee misused investor funds by creating false accounts and company revenue statements. The business used two separate databases to store its revenue and expenses to keep its actual orders and sales hidden from the public.
The chairman and CEO of Luckin Coffee were removed from their positions and ordered to pay a $180 million fine by the United States Securities and Exchange Commission (SEC).
Here is what we know about the Luckin Coffee accounting scandal:
The Starbucks rival has agreed to pay the SEC fine but has not agreed to any of the charges. However, a representative of the SEC revealed that “Luckin Coffee intentionally overstated its revenue and expenses in public financial reports from 2019.” Luckin has since admitted that their Chief Operating Officer and other staff fabricated sales reports of up to $310 million.
In December 2022, the world watched as one of the leading global public relations firms came under fire for falsifying accounting records. Former CFO, Frank Okanuk, was sentenced to 52 months in federal prison for using company funds to buy luxury boxes at sporting events and fund outside business ventures. In addition, Mr. Okanuk admitted to embezzling $16 million from the PR firm.
Here are the events that led to the sentencing in December 2022:
Throughout his embezzlement scheme, Mr. Okanuk used company funds for various shocking reasons, including a payment to his former university.
He falsified records to indicate that funds would be used to pay for an economic survey when, in fact, he was paying off a previous tuition bill of $20,000. Instead, Okanuk claimed a refund from the university and kept the money for personal use.
Regardless of your business size, there are several ways to protect yourself and your employees from accounting fraud. First, it is essential to remain open and honest about your financial reports and to put emphasis on training your employees to recognize when things look wrong. In addition, business owners should use internal methods and restrict user access to protect their accounts from fraudulent activity.
There are various methods that fraudulent accountants will use to help a company appear more fruitful than in reality. However, a certified public accountant (CPA) with positive reviews and recommendations will abide by financial laws and regulations. You can check their license number with the IRS Return Preparer Office Directory.
A CPA can also offer financial advice throughout the year, alongside preparing and filing your return. They may assist you with finding a suitable bank account if you have a poor credit history, manage your debt, and support you in various ways.
You should never leave your finances solely in the hands of your accountant or finance teams. Your role as the business owner is also to monitor every cent that leaves and enters your accounts. Educate yourself and your staff on your state's financial laws and tax requirements.
Some simple ways to keep track of your accounts include the following:
You can protect your finances by monitoring your finances closely and making your employees aware of their responsibilities. Seek advice from your account immediately when financial issues arise to minimize the impact on your business.
You must know your staff members and their role within your company. For example, employees with financial responsibilities should understand the consequences of submitting false financial documents or misrepresenting accounting information. Training and getting to know your team is an excellent fraud prevention method that business owners should not overlook.
An expense management software eliminates the need to manually check every expense against company policies by automating pre-submission checks. This significantly boosts compliance against set corporate policies, mitigates expense fraud, and saves time for the Finance teams. In addition, the software also flags and notifies stakeholders of all expenses that violate company policies (including duplicates.)
Here are some specific examples of how expense management software can help prevent expense fraud:
In recent years, companies have become more aware of expense fraud and are taking steps to prevent it. While it is impossible to control human behavior, management can take steps to reduce the risk of fraud, such as implementing clear expense guidelines, establishing consequences for policy violations, and switching to an automated expense software.