To combat fraud effectively, you first must understand what it is and how it occurs. For our purposes, the definition of fraud from Wikipedia is sufficient:
In law, fraud is deliberate deception to secure unfair or unlawful gain. Fraud is both a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud and/or recover monetary compensation) and a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities).
In other words, fraud requires the perpetrator to use trickery, deceit, or lies to obtain some form of benefit – often money directly, but it could be other benefits, such as health insurance, a job, merchandise, better stock value for the company, etc.
Now, there are as many different types of fraud as there are things to lie about. For now, I will focus on the types of fraud and related forms of theft that specifically target the business and the workplace. I’ll begin with the most common types of employee fraud: Asset misappropriation, embezzlement, and employee theft.
Asset Misappropriation, Embezzlement, and Employee Theft
Generally, these types of fraud/theft affect either the company’s cash or its inventory or physical assets. Frauds affecting the company’s cash or revenues include the following:
- Larceny: stealing from cash on-hand or deposits
- From Sales, by understating the value of goods sold, or not recording the sales of goods, and pocketing the cash
- From Receivables, through write-off schemes, “lapping” schemes (pocketing payment from a customer, then using the next customer’s payment to cover the shortfall), etc.
- From refunds
- Fraudulent Disbursements:
- Billing schemes – charging the company for non-existent work performed by shell companies, inflating the bills from vendors and pocketing the difference, etc.
- Payroll Schemes – “ghost” employees (pocketing paychecks for employees that don’t really exist), falsified commission schemes, fraudulent workers’ compensation claims, falsifying or inflating wages owed, falsified vacation time
- Expense reimbursement schemes – mischaracterized/overstated expenses, fictitious expenses, multiple reimbursements, billing the company for personal and not business expenses
- Check Tampering
- Forged maker
- Forged Endorsements
- Altered Payee
- Authorized maker
- Concealed checks
- Register Disbursements
- False voids
- False refunds
Frauds affecting the company’s inventory include the following:
- Misuse – using the company’s equipment (vehicles, etc.) for unauthorized personal use.
- Larceny – Stealing the company’s inventory or equipment, through falsified sales and shipping documents, purchasing and receiving documents, or simply stealing.
In a future blog post, I’ll summarize fraud in the form of falsified financial and business statements and corruption.
For more information on fraud schemes and how you can protect yourself, contact Radius Investigations at 1-888-698-0077, or the author of this blog at s.megibow@RadiusInvestigations.com.