Business fraud involves intentional deception for gain to self or damage to another. This world is full of fraudulent scammers and the corporate sector is no different. White collar crime is common nowadays whether you consider McKinsey’s Rajat Gupta or Wall Street’s Bernie Madoff. From direct swindling to Ponzi schemes, fraudulent crime is committed in many famous cases in the corporate world.
A typical company loses at least 5 percent of its annual revenue to scams, according to the Association of Certified Fraud Examiners. Frauds by financial honchos is not new. Add owners, and executives to the list too, along with employee fraud. Research has found the most common industries affected by business fraud include manufacturing, banking and public sector scams.
Business frauds include occupational/internal/employee fraud. These include bribery and nepotism, asset misappropriation and financial statement fraud. More than a single type of fraud is present in many of these schemes.
#1 Asset Misappropriation
This type of business fraud involves third parties or employees who misuse their position and standing to steal from company resources. Persons within the company may carry out this business fraud including company directors, board members and employees. From check forgery to money theft, payroll fraud, inventory theft, stealing services, vouchers or credit notes, to theft of company patent, formulas or data and intellectual property theft, the range is broad. The result of this is that the fraud causes the cash flow situation to worsen. This creates a major problem for the organization’s reputation and staff morale, not to mention its productivity. This is the most common form of business fraud.
#2 Bribery & Nepotism
From a legal viewpoint, active bribery involves offering undue advantage from the corporate worker to the public official to manipulate rules and regulations for the benefit of the company. This is one of the worst examples and costs more than asset misappropriation. Bribery and corruption schemes include giving or receiving something of value to influence a transaction, after the latter’s completion or demanding money if demands are not met. Apart from bribery, illegal gratuity, extortion, conflict of interest, theft of trade secrets, copyright or intellectual piracy or payoffs and kickbacks are other types of common business fraud.
#3 Financial Statement Fraud
This kind of fraud centers on the manipulation of financial statements to create opportunities for individuals or for the entity. This fraud is rare, but it does occur. Revenue overstatement, expenses understatement, overstating of assets, understating liabilities, improper resource usage, one time expenses becoming a golden standard, omission of information or misapplication of accounting rules are just some of the different types of this kind of fraud. Enron is perhaps the biggest corporate scandal of this genre which rocked the world.
Business fraud is fairly common. It includes phishing and spoofing by crime syndicates too, which try to sell the name of a company to draw out money. Using the credibility and brand name of a “business” many scam artists do a fine job of stealing your cash too. Catching a fraud may be hard work, but it is worthwhile. Business frauds are the hardest to detect. Be sure to report these. You could be saving money, time and jobs.