CORPORATE FRAUD

• is an intentional act by one or more individuals among management, those charged with
governance, employees, and third parties using deception to get an unfair and illegal
advantage.

• refers to illegal activities undertaken by an individual or company that are done in a dishonest
or unethical manner. Often, this kind of business fraud is designed to give an advantage to the
perpetrating individual or company. Corporate fraud schemes go beyond the scope of an
employee's stated position and are marked by their complexity and economic impact on the
business, other employees, and outside parties.

• Consists of illegal or unethical and deceptive actions committed either by a company or an

individual acting in their capacity as an employee of the company. Corporate fraud schemes
are often extremely complicated and, therefore, difficult to identify. It often takes an office full
of forensic accountants, months to unravel a corporate fraud scheme in its entirety.

WHY DOES CORPORATE FRAUD HAPPEN?

1. THE DESIRE OR PERCEIVED NEED TO ATTRACT OR RETAIN INVESTORS

Corporate fraud commonly occurs for the same reason as any other fraud scheme – greed.
However, amid the highly competitive global business environment of the modern world, it
may also occur for other reasons. Many corporate fraud schemes used to make a company
appear more profitable than it actually is. The impetus behind such schemes is the desire or
perceived need to attract or retain investors.

2. PROBLEMS OR DEFECTS WITH A COMPANY’S PRODUCT

Another cause of corporate fraud may be problems or defects with a company’s products,
which it tries to hide. Several recent corporate fraud cases have occurred with
pharmaceutical companies that attempted to hide certain side effects or danger
associated with using certain medicines they manufactured and sold.

TYPES OF CORPORATE FRAUD

1. Payment Fraud

This type of fraud involves falsely creating or diverting payments. Examples include creating fake
records and bank accounts which enable the fraudulent payments to be made. Other examples
include generating false payments, making fraudulent payments to oneself, intercepting and altering
payee details, and amounts on cheques and other forms of payment order and attempting to then
bank those payments and processing false claims by accomplices for later repayments.

2. False Accounting Fraud

This type of fraud involves the alteration of the way in which company accounts are presented so
that they do not reflect the true value or financial activities of the company. This fraud commonly
includes the overstating of assets and/or understanding of liabilities. False accounting may be
undertaken for a variety of reasons, often to obtain additional financing or to report unrealistic profits
and/or to inflate the share price.

Falsification of Financial Information

Tax avoidance is legal; tax evasion is definitely not. However, there are some corporations that are
very willing to make unauthorized or even false claims in their financial records just to avoid taxes and
other fees. The damage that this does to the state is obvious, and this is the reason much of the FBI’s
force is aimed at countering falsification of corporate financial records.

3. Identity Theft

There is identity theft when a person uses another person’s or even corporate details to acquire or
evade something. As such, identity theft can be made by both a person and a corporation (such as
when a corporation uses a famous person’s name to enhance their popularity).

4. Copyright Infringement

Aside from money and real property, intellectual properties are also very valuable resources that
can be stolen. Unfortunately, intellectual property theft and copyright violations are among the
most common forms of corporate fraud. In a nutshell, there is intellectual property theft if
someone uses another person’s or entity’s work, innovation, creation, or invention as their own. In
academic terms, this is akin to plagiarism.

Profiting or benefiting from another entity’s intellectual properties is serious because it can
destroy whole companies and disrupt crucial economic elements such as price and consumer
confidence.

5. Procurement Fraud

Procurement is the process of acquisition from third parties and covers the acquisition of goods,
services, and construction projects. Procurement fraud often involves collusion to perpetrate a fraud
covering tendering irregularities, the rigging of bids or claims for payment – often in relation to goods
(and sometimes services) that were not delivered or are inferior to what was specified as the order.

6. Exploiting Assets and Information Fraud

Examples of fraudulent activities reported under this category include staff on sick leave but working
elsewhere, abuses of flexible working time systems, misuse of company time, and deceit or
misrepresentation for advantage (e.g., false references or false qualifications used to secure
employment.)

7. Travel & Subsistence, Pay and Other Allowances Fraud

Fraud in this area involves such activities as the completion of fraudulent claims for payment or the
creation of false payroll records. Examples of fraud include claims for journeys that were not made,
false client entertainment claims, overstated claims, forged signatures authorizing payment,
falsification and/or unauthorized amendments of timesheets, deliberate failure to repay salary
overpayments and the creation of non-existent personnel on payrolls.

8. Receipt Fraud
This type of fraud involves using the assets of the organization for other than official purposes and/or
supplying information to outsiders for personal gain. It excludes straight theft from the company by
insiders, such as stealing stationery or other physical assets.

References:

https://www.investopedia.com/terms/c/corporate-fraud.asp
https://corporatefinanceinstitute.com/resources/knowledge/finance/corporate-fraud/
https://www.franciswilksandjones.co.uk/site/fwjsays/faq_booklets/tips_different_types_of_corporate_fraud_uf.ht
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https://www.lawyer-monthly.com/2020/07/3-most-common-types-of-corporate-fraud/