Types of Financial Fraud Accountants Should Recognise
In brief: Accountants do not investigate fraud like law enforcement, but they do need to recognise fraud indicators that change client risk, CDD depth, and internal escalation decisions.
Key points
- Fraud indicators can affect AML risk even when the firm is not advising on the fraud itself.
- Common patterns include invoice fraud, APP fraud, identity fraud, mortgage fraud, payroll fraud, and false accounting.
- The file should record facts, risk impact, evidence reviewed, and escalation decisions.
Why fraud matters for AML files
Fraud is often the predicate offence behind money laundering. A UK accountant may not be investigating the fraud itself, but fraud indicators can affect the client risk assessment, the level of CDD, source-of-funds questions, and whether the matter should be escalated internally.
The useful question is not "can we prove fraud?" It is "do the facts create AML risk that we need to record, investigate proportionately, or escalate?"
Common fraud patterns firms may notice
| Fraud type | How it may appear in client work |
|---|---|
| Invoice fraud | False, inflated, duplicated, or unrelated invoices. |
| APP fraud | A client or business sends funds after being deceived by a scammer. |
| Mortgage or loan fraud | Income, ownership, or purpose is misrepresented to obtain finance. |
| Identity fraud | A person uses false or stolen identity details. |
| Payroll fraud | Ghost employees, manipulated hours, or unusual payroll instructions. |
| False accounting | Records are altered to hide theft, losses, liabilities, or proceeds. |
What to do with a fraud indicator
- Record the fact, not a dramatic conclusion.
- Compare it with the client profile and expected activity.
- Consider whether CDD or source-of-funds evidence needs updating.
- Escalate internally if suspicion may exist.
- Avoid tipping off.
- Keep a decision note.
Practical file note
A good file note says what was seen, who reviewed it, what evidence was requested, how the risk rating changed, and whether the MLRO or nominated officer was involved.
This guide is general information and is not legal advice.