Corporate Frauds

06/05/2021 1 By indiafreenotes

Corporate fraud 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.

Corporate fraud consists of activities undertaken by an individual or company that are done in a dishonest or illegal manner, and are 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.

Corporate fraud 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.

Types of Fraud:

There are many types of corporate fraud, including the following common frauds:

  1. Theft of cash, physical assets or confidential information
  2. Misuse of accounts
  3. Procurement fraud
  4. Payroll fraud
  5. Financial accounting mis-statements
  6. Inappropriate journal vouchers
  7. Suspense accounting fraud
  8. Fraudulent expense claims
  9. False employment credentials
  10. Bribery and corruption.


  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 consist of fraudulent accounting 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.

  1. Problems or defects with a company’s products

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 dangers associated with using certain medicines they manufactured and sold.

Government regulatory authorities, such as the Securities and Exchange Commission (SEC) in the United States, use laws and regulations to try to prevent, detect, and punish corporate fraud. However, fraud may go undetected for many years before it becomes apparent to authorities, especially if the guilty company is a private company that is not required to publicly disclose its financial records.


One of the best ways to develop policies and procedures that are effective in prevention corporate fraud is with the assistance of an experienced anti-fraud professional who has investigated hundreds of frauds to develop the most relevant and most effective anti-fraud controls including:

  1. Establish clear and easy to understand standards from the top down. Have an employee manual that clearly outlines these standards and keeps the rules from becoming arbitrary.
  2. Always check references and perform background checks that include employment, credit, licensing and criminal history for all new hires.
  3. Secure physical assets, access to data, and money at all levels including monitoring and using pre-numbered checks, keep checks locked up, have a “voided check” procedure and never sign blank checks. Review all disbursements regularly.
  4. Segregation of duties of employees. Divide activities so one employee doesn’t have too much control over an area or duty. Separate important accounting and account payable functions. Small-business owners and managers should review every payroll check personally. The person who has custody of the checks should never have check signing authority. The person opening the mail should not record the receivables and reconcile the accounts.
  5. Proper authorization of transactions, ensuring that employees aren’t exceeding their authority.
  6. Independent checks on performance, using audits, surprise check-ups, inventory counts, or other procedures to verify compliance with policies and procedures, as well as accuracy.
  7. Instill an anonymous reporting mechanism, such as an employee fraud hotline.
  8. Small-business owners should control who first receives the bank statements and other sensitive documents. Consider a separate post office box for the purpose of receiving bank statements, customer receipts or any other sensitive documents.
  9. All account reconciliations and general ledger balances should have an independent review by a person outside the responsibility area such as an outside accountant. This allows for reviews, better ensuring nothing is amiss and providing a deterrent for fraudulent activities.
  10. Conduct annual audits to motivate all bookkeeping- related staff to keep things honest because they can never be sure what questions an auditor is going to ask or what documents an auditor may request to review.
  11. While no company, even with the strongest internal controls, is completely protected from fraud, strengthening internal control policies, processes and procedures will go a long way towards making your company a less attractive target to both internal and external criminals.

Corporate Scandals:

One of the most reputed company revealed in September that it had installed software on millions of cars in order to trick the Environmental Protection Agency’s emissions testers into thinking that the cars were more environmentally friendly than they were, investors understandably deserted the company.

Company lost roughly $20 billion in market capitalization, as investors worried about the cost of compensating customers for selling those cars that weren’t compliant with environmental regulations.

The company not only has to deal with compensating their customers, but it will also need to contend with potential fines from regulators as well as a reputational hit that could severely affect its market share.

Other Example of Corporate Scandal is one of the biggest Ponzi schemes in West Bengal that enjoyed political patronage and lured millions of investors to deposit money with the promise of abnormally high returns including fancy holidays etc. The chit fund eventually collapsed leading to defaults after a crackdown by SEBI and the Reserve Bank of India. The default, apart from leaving small depositors high and dry, also led to 10 media outlets owned by company being forced to wind up, leaving 1000 journalists jobless.

And an online business survey firm that collected thousands of cores of rupees from over 24 lakh investors, asking them to fill surveys and guaranteeing to quadruple their income in one year, company was accused of running a Ponzi scheme. A criminal case was registered against the company in 2011, some accounts frozen and its business shutdown.