Corporate Fraud

Financial Statement Fraud

Enterprises that deliberately force a reconciliation of accounts or omit material information on their balance sheet bear the risk of legal action. Even though Financial Statement Fraud is not the most likely fraud to happen to your company it is definitely the one type of fraud that can monetarily devastate your business, since it is the most costly type of fraud, according to the “Report to the Nations 2022,” by the Association of Fraud Examiners.

Types of Financial Statement Schemes

Following is a list of the types of financial statement schemes. Major categories are as follows in the ACFE Manual Vol. I §1 - Financial Transactions and Schemes:

  • Fictious revenues
  • Timing differences
  • Improper asset valuation
  • Concealed liabilities and expenses
  • Improper disclosures

Assets Misappreciation

Misappropriation of assets usually involve a series of scams which make it hard to discern its presence. These usually involve the following, but not limited to:

Skimming, cash larcenies, billing schemes, personal purchases, Ghost Employee, falsified wages and more. These are intentional acts committed in order to obtain unjust enrichment that cause a negative impact on your business or company.

Corporate/Industrial Espionage

Corporate/Industrial Espionage should not be compared to Competitive Intelligence, because the means utilized by Corporate/Industrial Espionage are not acts that adhere to good business practices or corporate fairness. The trade secrets of a corporation ultimately can be the core of business success and by depriving the business of its trade secrets integrity that might discourage future investment and affect profits.

Detention of Fraud

In order to properly detect and do an assessment of suspected fraud, a team of unbiased fraud professionals with the necessary skills must be consulted. It is recommended by the ACFE that all members of the fraud team remain impartial throughout the entire process to provide an accurate measure of the level of risk that your business is facing or encountering. A sophisticated CFE has the skills and tools essential to undertake and assemble the personnel required to ensure the success of the fraud team assessment.

Prevention of Fraud

Separation of duties of business employees and associates along with the implementation of internal controls that cannot be overridden by management are some of the key components of fraud prevention. Everyone in the corporate organization should be made aware of a zero-tolerance policy regarding fraud, and every employee should be engaged in the fraud prevention process. Management is ultimately responsible for the detection and prevention of fraud and for adopting adequate internal controls for the industry that the business operates.

There is no Fraud-free corporate environment, but the inherent risk of fraud can be mitigated, leaving a residual risk that can reduce and alleviate the potential burden on the company’s coffers.