According to the Association of Certified Fraud Examiners (ACFE), businesses lose around 5% of financial revenue due to fraudulent behavior. While this may not sound like a lot in the grand scheme of things, experts also estimate total annual loss worldwide at a whopping $3.7 trillion.
Several financial fraud schemes can affect businesses. These include:
Payroll Fraud
This is one of the most common types of corporate fraud. It can be defined as the theft of funds from a business via the payroll processing system. Payroll fraud is usually committed by an employee attempting to receive any money they are not entitled to from their workplace.
Asset Misappropriation/Skimming
This can be defined as using company or client assets for personal gain. Although the average loss of each fraud case is low, asset misappropriation is the most common type of occupational fraud committed.
Invoice Fraud Schemes
Invoice fraud is when a third party submits fake invoices to a company with the intent to extract money. Often, companies are unaware of the scheme and unwittingly pay for goods or services never rendered.
Tax Fraud
Also known as tax evasion, tax fraud is the illegal abuse of the taxation system for financial benefit. It’s a serious crime and carries a maximum penalty of up to 10 years’ imprisonment. Many different federal and State offenses fall under the umbrella of tax fraud.
Other schemes that businesses may come across include:
-Data, Intellectual Property and Identity Theft
-Insurance and Banking Fraud
-Money Fraud
-Bribery and Corruption
Critical Steps to Reporting a Crime and Potentially Recovering Lost Funds
For companies that previously functioned with primarily in-person interactions, payments, and other dealings had to shift online quickly when the COVID-19 pandemic hit around the world. Even for those who already managed money transfers digitally or customer communications via email, some level of adjustment still had to be made. Unfortunately, the shift has led to a rise in business fraud.
One crime, known as business email compromise, involves a company receiving an email and pretending to be a known client or vendor. The message may indicate that the payment details have changed, and funds must now be transferred to a new account, bank, or recipient.
Because the note includes familiar information, such as the logo or name, the reader may deem it legitimate and follow the instructions. In the wake of this payment, a business may likely recognize their error and find themselves in an alarming situation – their money is gone.
Realizing your business has become a victim and funds have been sent to a fraudster can be distressing. The actual number of instances is unknown as not all crimes of this nature are reported. It’s essential to notify the appropriate parties so action can be taken. Immediately contact your accounting department and make sure you keep records of ALL contacts made with the fraudster (i.e., electronic copies of the emails).
Do not make any further payments to the beneficiary until the security issue is resolved.
It’s important to note that corporations are “legal persons” capable of suing and being sued and capable of committing crimes. A corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. To be held responsible for these actions, the government must establish that the corporate agent’s actions (i) were within the scope of his duties and (ii) were intended, at least in part, to benefit the corporation.
In all cases involving wrongdoing by corporate agents, prosecutors should consider the corporation and the responsible individuals as potential criminal targets. It is very common for corporate fraud charges to include conspiracy, other types of fraud, and other types of theft. In addition to a prison sentence for conviction of corporate fraud, federal criminal statutes allow for the imposition of criminal fines and restitution.
