Arrangements were then made for the audit to take place and in the meantime some stock was moved off site! “The Accountant and Bank Manager who assisted the evader are both guilty of conspiracy to defraud – it matters not that they made no financial gain themselves. Extractive Fraud This might take the form of Suppressed receipts or inflated outgoings: Suppressed Receipts Typically these involve defected mainstream takings and often an undisclosed bank account. However the more resourceful evader may take advantage of special arrangements or unexpected receipts: Where the proprietor or director personally deals with some customers it may be possible for cheques to be made out in a manner which facilitates diversion. Alternatively cheque substitution may be used, such that the otherwise “off record sale” cheque is banked and an equivalent amount of “on record cash” is extracted.
It is not unknown for late cash payment of credit sales to bypass the bookkeeping system with the debt subsequently being written off as bad. Unexpected receipts always present a good opportunity for deflection. For example:
- Scrap sales
- Insurance or bad debt recoveries
- Refunds, rebates or discounts
- Returned goods sold for cash, disposal of fully written down assets and windfalls in general.
The evader may take advantage of a new business opportunity, which remains hidden, and off record. Examples of this seen in practice include:
- the dentist with three practices of which only two were discloses
the off record sale of hitherto obsolete car parts to the burgeoning classic car market Inflated Purchases & Expenses Where the ability to deflect receipts is too difficult the evader might draw cash from the business bank account and disguise such withdrawals as some form of legitimate business expense. In practice this often involves the use of “ghost” employees or fictitious outgoings to cover such extractions. Fictitious outgoings have to employ the use of false invoices. These might take the form of altered invoices, photocopied or even scanned “blanked” versions of genuine invoices, completely bogus invoices or even blank invoices supplied by an associate.
Another approach seen in practice involved the use of a seemingly unconnected off shore company to raise invoices for fictitious services. To hide the true ownership of the off shore company the evader uses a “black hole” trust to hold the shares. Essentially this involved a compliant non-resident trustee and “dummy” settler – the trustee providing “stooge” directors as part of the arrangements.
Employment Tax Evasion Schemes Employment tax evasion schemes can take a variety of forms. Some of the more prevalent methods of evasion include pyramiding, employee leasing, paying employees in cash, filing false payroll tax returns or failing to file payroll tax returns. Pyramiding “Pyramiding” of employment taxes is a fraudulent practice where a business withholds taxes from its employees but intentionally fails to remit them to the relevant departments. Businesses involved in pyramiding frequently file for bankruptcy to discharge the liabilities accrued and then start a new business under a different name and begin a new scheme. Employment Leasing