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Corporate fraud occurs when executives, directors or employees deceive the public, government or investors about a company’s financial performance. This is often done to cover up failures or for personal gain. Fraud can impact a company’s stock price and tax liability. Fraud cases often involve high-level employees and can be difficult to detect. Whistleblowers and government investigators often uncover fraud, and those found guilty can face severe penalties.
Corporate fraud occurs when a company’s executives, directors or employees mislead the public, government or investors about aspects of the company’s financial performance or other matters that could affect people’s perception of the company . People usually commit corporate fraud to cover up a company’s failures or for their own financial gain. Laws in most countries allow for prosecution of companies and individuals who commit fraud.
The performance of a publicly traded company has a direct impact on its share price. Poor quarterly results cause the share price to fall, which means that both the company itself and its shareholders are at risk of losing money. Good quarterly or annual results usually cause a company’s stock price to rise, and many companies reward executives with bonuses when the company’s results exceed expectations. Company officials can gain financially by deceiving the public about the company’s actual results.
Both companies and individuals have to pay taxes and the more money a company generates the more it has to pay in taxes. Corporate fraud sometimes aims to minimize a company’s tax burden by minimizing its profits to mislead the tax authorities regarding its tax liability. Accountants involved in fraud sometimes falsify documents showing that the company’s overheads were more than real in order to get tax deductions. Due to the complex nature of corporate accounting, fraud cases typically involve high-level employees and require the involvement of several employees because no one employee has the ability to successfully alter a large number of company-related documents.
Many corporate fraud cases involve a single company, but in other cases, business partners and outside companies also play a role in committing the fraud. Laws in many countries require companies to hire external accounting firms to conduct annual audits. These laws are designed to ensure that insiders cannot commit fraud, but some people circumvent the laws by persuading outside company employees to engage in fraud. Fraud cases are often more difficult to detect when large numbers of people are involved because records containing various types of information can be tampered with to make finding the truth more difficult.
Government investigators often discover cases of corporate fraud based on information provided by inside company whistleblowers who are involved in the fraud or somehow learn about it and go to law enforcement with their findings. Companies found guilty of fraud can be fined and even forced out of business. Individuals who are complicit in corporate fraud often face severe penalties, including fines and prison terms.
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