If business managers try to cover up financial misconduct by manipulating internal controls or making false accounts, they usually use a series of complex methods to evade supervision and audit. However, these behaviors are not only illegal, but also seriously damage the reputation of the company and the rights and interests of stakeholders. The following are common patterns and potential risks of such behavior, for understanding and prevention only： ###1. Abuse of internal control system 1. **Failure of separation of responsibilities** -Deliberately blur the boundaries of responsibilities in key positions such as finance, approval, and asset custody, so that the same person or small group can control multiple links, making it easy to tamper with data. -For example: let the accountant be responsible for the collection and payment of funds and the reconciliation of accounts at the same time, eliminating internal checks and balances. 2. **Bypass the approval process** -Falsify high-level authorization documents or use management privileges to approve abnormal transactions (such as the transfer of interests of related parties). -Replace written records with oral instructions to avoid trace audits. 3. **Tampering with information system permissions** -Restrict the audit department's access to critical data, or set up false backups to conceal the original records. -Use system vulnerabilities to modify transaction timestamps or delete abnormal flows. ###2. Typical methods of false accounts 1. **Income manipulation** -**Confirm income in advance**: Fictitious contracts when services or goods are not completed, exaggerating current profits. -**Circular transactions**: Collude with affiliated companies to increase the scale of revenue through false sales and returns cycles. 2. **Hidden costs and expenses** -**Capitalized expenses**: Daily operating expenses are included in long-term assets (such as capitalization of R&D expenses) to reduce current costs. -**Off-balance sheet liabilities**: Hide the true debt level through undisclosed guarantees and derivative contracts. 3. **Distortion of asset value** -**Inflated inventory valuation**: Falsifying inventory inventory records or overestimating the value of unsalable products, and exaggerating the scale of assets. - **Adjustment of bad debt reserves**: Artificially reduce the proportion of impairment provision for accounts receivable to cover up the risk of recovery. 4. **Cash flow forgery** -Create false cash inflows through short-term bridge loans and return them immediately after the deadline for financial reports. -Disguise the cash inflow from financing activities as operating cash flow. ###3. Risks and consequences of long-term cover-up 1. **Accumulation of systemic risks** -Initial small-scale fraud may evolve into huge financial holes through “snowballing”, such as hiding debts through SPE (special purpose entity) in the Enron incident. 2. **Audit failure** -Management may put pressure on the internal audit department or choose an external audit institution with a high degree of cooperation, resulting in key issues being ignored. 3. **Legal and credibility crisis** -Once exposed, it will face securities regulatory penalties, criminal accountability (such as executive accountability under the Sarbanes Act) and shareholder class actions. -Corporate credit ratings have been downgraded, financing costs have risen, and even bankruptcy has been triggered. ###4. Compliance recommendations -**Strengthen the independence of internal control**: Ensure that the audit committee reports directly to the board of directors and prevents management intervention. -**Third-party verification mechanism**: Introduce technical means such as blockchain certificate deposit and comparison of external data sources to solidify the authenticity of transactions. -**Whistle-blower protection system**: Establish an anonymous reporting channel to encourage internal employees to expose abnormal operations. -**Regular rotation and unannounced audits**: Prevent the consolidation of long-term positions from forming a hotbed of fraud. Any financial manipulation will eventually destroy the market trust mechanism. For enterprises, adhering to transparency and compliance management is the foundation of sustainable development. Regulatory authorities (such as the SEC, national securities commissions) and international accounting standards (IFRS/GAAP) have established a strict anti-fraud framework, and violators will bear legal costs that far exceed short-term benefits.