The Lemon Fool

Is this scenario a fraud?

Companies A and B are negotiating a deal.

The deal is signed on April 4th. But the negotiator from Company A wants the deal to show in his figures for January-March, and asks B to agree to backdate the deal to March 31st.

B has no internal pressures one way or the other. Should B agree? If not, why not?

Does A's motivation make any difference to the answer? For example, if it fed into A's personal bonus vs looking better in the company's accounts?

It starts really with a question as to what the possible range of dates could be that any particular deal is agreed. If there are a range of dates then I would not think that it would necessarily be a problem picking one of them.

For example if company B provides services to company A and they agree that the services will be provided, but that they will work on the details of the agreement then there has been an agreement since at least the point at which the services started being provided. Then there are questions as to when negotiations started and what has varied over what period.

However, there are also times it can be fraudulent. Hence it is something to take specific advice on if it is not clear from all of the facts.

Is the service vatable? If so - it is just possible that changing the date of the deal will have implications on payment period for VAT charged (and possibly recovered).

T7

The manipulation of contract dates is one of the issues in the HP v Autonomy case:

Mr Egan said that he once asked for a purchase order to be sent to his personal email address so that he could backdate the deal to the previous quarter for Autonomy’s accounts.

https://www.telegraph.co.uk/technology/2019/05/08/hps-star-witness-mike-lynch-fraud-trial-describes-uncomfortable/ (Premium

RC

There are, however, differences between a situation where both parties agree for a particular operative date which is prior to the final detailed agreement and something where one of the parties (or an employee of one of the parties) unilaterally changes the operative date.

Rummaging around I found this article which I thought was quite good.
https://www.lexology.com/library/detail ... 3c35a88341

ReformedCharacter wrote:The manipulation of contract dates is one of the issues in the HP v Autonomy case:
RC

That is precisely what I was fishing for insights into. I thought that a nonspecific question might, with luck, lead to more interesting discussion.

The Register is reporting on it in detail ( https://www.theregister.co.uk/2019/05/1 ... ng_allegs/ for the specific question), and it makes for quite a soap opera.

johnhemming wrote:Rummaging around I found this article which I thought was quite good.
https://www.lexology.com/library/detail ... 3c35a88341

Well, that's a surprisingly clear and unambiguous clarification of the specific question (yes, what's being alleged was improper).

Thanks for the link.

The issue of hitting quarter or annual targets has been around for decades. It obviously also relates to the basic question as to when revenue is recognised. Personally I have always preferred a cautious approach to the recognition of revenue because I prefer good surprises to bad ones.

In the US backdating the date of a contract so it is reported in a different financial period is called wire fraud and carries a custodial sentence. I know because a CEO of the company I worked for was jailed for doing just that. I assume something similar applies here, as the effect of the reporting would be to fraudulently misrepresent the financial performance of the company as different than it had been.

Right, I'll stop replying to ancient posts now.

RW