What are the penalties for defective and unreliable bookkeeping?

This article answers the following questions:

• What acts or omissions cause accounting books to be considered unreliable or defective?
• What are the legal implications of inaccurate bookkeeping and what triggers them?

Transactions concluded by business entities require appropriate documentation and bookkeeping. Pursuant to the Polish Fiscal Penal Code, books include not only accounting books but also revenue and expense ledgers, records, registers, and similar recording devices (primarily cash register entries), which are required under the Accounting Act. Therefore, books should both present a reliable and accurate picture of the entity and meet a number of requirements specified by law. What errors can lead to books being deemed defective?

For books to constitute evidence in the event of, for example, tax proceedings (pursuant to Article 193 of the Polish Tax Ordinance) before the tax authorities, they must be kept reliably and be free from defects. Documents meet these conditions if the entries in them are kept in line with the regulations and reflect the factual circumstances.

The definitions of unreliability and defectiveness are provided in the Fiscal Penal Code.

• An unreliable book is one kept in a manner that is inconsistent with the actual state of affairs (Article 53(22) of the Fiscal Penal Code). The books' unreliability is evidenced by entries recognising events that did not occur, omitting events that did occur, or declaring figures other than those that actually occurred.
• A defective book is one kept contrary to the provisions of the law (Article 53(23) of the Fiscal Penal Code). In terms of accounting books, defective bookkeeping means that economic events are recorded in a manner that disregards the principles arising from the Accounting Act and other legal provisions.

If the books are kept in an unreliable and defective manner, the tax authorities have grounds to impose fiscal penalties on the business.

What are the penalties for unreliable or defective bookkeeping?

Penalties imposed on entities for errors in bookkeeping are considered in the light of three legal acts, which are:

• the Fiscal Penal Code (the basic act applied by courts and law enforcement agencies ex officio),
• the Accounting Act,
• the Penal Code.

If irregularities are detected in the course of a tax audit (or as a result of failure to comply with other obligations, which include, among others, failure to submit financial statements), the provisions of the Fiscal Penal Code regarding criminal liability for faulty bookkeeping practices apply.

The penalty that Polish authorities may impose on perpetrators of unreliable bookkeeping are – in accordance with Article 61(1) of the Fiscal Penal Code – a fine of up to 240 daily rates.

Where there are minor bookkeeping violations, the perpetrator is subject to a fine as for a fiscal misdemeanor. The same penalty applies to anyone who improperly maintains their books.

The penalties for unreliable bookkeeping, as defined in Article 303 of the Penal Code, include a maximum penalty of up to three years' imprisonment – unless the property damage is significant, in which case the penalty may increase to five years' imprisonment. Unlike in the case of the Accounting Act, under the Penal Code, the perpetrator can only be punished if a property damage occurs – reliable bookkeeping alone does not constitute grounds for criminal liability. According to the principles set forth in the Accounting Act, a taxpayer who fails to maintain records reliably may be subject to a fine and a prison sentence of up to two years.

Where the crimes are sanctioned by the Accounting Act, the police and tax authorities are responsible for conducting investigations. These authorities more often consider cases of defective bookkeeping under criminal law (for tax authorities, this is the Fiscal Penal Code, while the police refers to the Penal Code).

It should be noted that in the case of the Accounting Act, unreliable bookkeeping constitutes grounds for liability, regardless of whether the effect in the form of a damage or breach of a tax obligation was significant.

Who is accountable for unreliable tax bookkeeping?

Under Article 4(5) of the Polish Accounting Act, the accountability for keeping accounting books rests with the management of the business entity and they are obliged to fulfil the accounting obligations specified in the Act.

Even if the management of the entity outsources bookkeeping to an external company, they are not released from their obligation to exercise oversight. The responsibility can only be extended to other individuals entrusted with bookkeeping tasks upon their written consent.

In summary, reliable and compliant accounting is crucial in order to steer clear of serious legal and financial implications, as errors can lead to fines and even imprisonment. Responsibility rests with the management, even if accounting is handled by an external entity. Therefore, to ensure flawless accounting, it is worth reaching out for the professional auditing services and support of RSM Poland experts who will look into accounting processes and provide security and peace of mind to those in charge of financial operations and the entire company.