3 Types of Financial Fraud in Business.

 3 Types of Financial Fraud in Business.

3 Types of Financial Fraud in Business.

By Said Ul Amin | Submitted on 31 October 2022.

Business fraud can have a huge impact on an organization. There are many types of fraud that go by different names, such as financial statement fraud, bribery and corruption, and misappropriation of assets.

It is often the case that employee-induced fraud involves more than one type of fraud. In addition, business fraud is not always easy to detect because it does not always appear in the company's official accounts system.

Typically, the most common way to detect this type of fraud is to receive a tip from an employee, customer, or outside vendor.

Here is an overview of the various financial frauds in business:

Misappropriation of assets

Asset embezzlement is a type of fraud that involves a staff member using their position to take from their employer.

These frauds are often committed by people trusted to manage a company's interests and assets, which may include board members, employees, or directors.

This type of fraudulent activity may include theft of company formulas, patents, or sensitive data, theft of credit notes or vouchers, theft of inventory, theft of money or check forgery.

Any company that suffers from misappropriation of assets will face some form of cash flow problems. In addition, it can also negatively impact staff morale and company reputation.

It is believed that over 90% of business fraud is related to the misappropriation of assets making it by far the most common problem. On average, losses from this type of fraud are in the region of $150,000 per case.

Bribery and corruption

Bribery and corruption are the next most common problem related to fraud in the business environment.

Although this type of fraud is less common than the misappropriation of assets, the average cost of a bribery scheme is significantly higher and is likely to exceed half a million dollars per case.

The variety of schemes involved in this area is quite wide and includes the substitution of inferior goods, manipulation of contracts, bribery to influence decision-making, shell company schemes, and kickbacks.

Financial statement fraud

Financial statement fraud is less frequent, but almost certainly experienced in most cases. On average, this type of fraud can cost a company up to $2 million per case.

This fraud involves an entity or individual misrepresenting income or statements of income in an attempt to obtain a financial benefit for them.

This type of fraud may involve manipulating company records in order to obtain more favorable loan terms, improve year-end bonuses, or influence the stock price.