Corporate fraud may refer to one of two things. The firm commits a fraudulent act, or a fraudulent act is done against the company. A company can commit fraud using a variety of strategies to ward off audits and enhance its standing in the market. Due to corruption, asset theft, and financial statement fraud, businesses may become targets of employee fraud. To prevent fraud, all firms must adhere to proper business ethics.
How corporate fraud occurs
Due to growing corporate size, activities, and chances to stretch the law farther, there has been an upsurge in corporate fraud in recent years. It may show up in the following ways:
– Assets: Asset theft is a widespread type of corporate fraud, and asset manipulation accounts for 80% of corporate crimes.
– Accounting: Corporations and their workers frequently falsify account records to hide the losses of their businesses.
– Taxes: Corporations avoid taxes by hiding important firm information or by taking advantage of legal loopholes.
According to Forbes, corporate fraud is widespread in the IT and computer industries, where there are more ways to hide criminal activities. According to data conducted by the US Securities and Exchange Commission (SEC), 89% of corporate fraud prosecutions involve the chief financial officer and the chief executive officer. The most effective method for committing corporate fraud is withholding legitimate income or cost records while inflating the company’s assets. As a result, organisations charged with evaluating a company’s behaviour are unable to do so because of altered data. A US-based energy, commodities, and services corporation named Enron was found to have engaged in dishonest business practises that amounted to corporate fraud.
Enron concealed its debt until it reached $2 billion by fabricating claims and erasing financial records that proved its guilt. The company filed for bankruptcy in October 2001, and it was the worst audit failure ever. The Enron Corporation was the subject of an SEC investigation into fraud and corruption. Executives who manipulated papers requested by the SEC for the inquiry and unlawfully destroyed financial records were jailed.
Preventing fraudulent activities by employees
From October 2017 to March 2018, according to the UK’s Annual Fraud Indicator 2017, 62% of recorded scams involved corporations, while 39% involved individuals. A crackdown is required since there are frequently operational fraud worries for businesses. The Association of Certified Fraud Examiners (ACFE) analysed fraud within businesses and proved it took roughly 18 months to identify, during which time the company suffered significant financial losses at the hands of criminals. An effective anti-fraud system must be in place for organisations.
Monitoring Behavioral Changes in Employees
Employers must actively watch staff members to notice any behavioural changes that might indicate fraud. It is challenging for management to keep track of every employee’s shifting attitudes. Large firms need to thoroughly screen potential hires to see if they have the motivation or propensity for fraud. They also need to set up a mechanism for workers to report suspicious conduct so that management is alerted.
With the right controls, firm assets may be protected with little chance of theft or corruption on the part of personnel. Separation of roles helps internal controls and lowers the majority of fraud risks. In order to prevent document alteration or destruction, corporate procedures should also be documented and maintained secure. Whether committed by the company itself or by its workers, corporate fraud is a widespread occurrence and all workers should be alert to it.