Check fraud is a type of white-collar crime where high-ranking employees use company assets for personal gain. It involves accounting fraud, forgery, and Ponzi schemes. The CEO is in a unique position to commit this crime, and it can lead to the failure of companies and even governments.
Check fraud is a type of white-collar crime in which a high-ranking employee or employees of a company use assets for their own personal monetary gain. Ponzi schemes, the Enron scandal, and the savings and loan crisis of the 1980s and 1990s are the most obvious examples of check fraud. The theory behind this form of corporate crime marries criminology, economics, finance and many other disciplines.
The term “check fraud” was created by William K. Black, an attorney, writer, and former bank regulator. The term may apply to the fraudulent act itself or to the person or persons who committed the fraudulent act. Black states that “individual control fraud causes greater losses than all other forms of property crime combined. They are financial super-predators.”
The idea behind fraud control is that the chief executive officer (CEO) of a company is in a uniquely advantageous position. This position allows the CEO to manage all checks and balances within the company, giving him carte blanche to remove them at will. Through carefully constructed hiring practices, where the CEO hires accomplices to further safeguard the illegality of money management, the CEO is able to commit accounting fraud by forging documents and skimming money at the top.
Once the records are falsified, it appears that the company is making astronomical profits, which results in a rise in the stock. While the public is investing its money in the company’s stock, however, those who commit check fraud will cash in on their own shares. This type of fraud takes money directly from shareholders, creditors and consumers.
A Ponzi scheme is a type of check fraud in which a company pays money back to individual investors, when, in reality, the money is taken not from any existing profits but from other members or from the company itself. The Enron scandal was another high-profile check fraud case that saw abnormal accounting practices that many considered fraudulent; this led to one of the largest bankruptcy cases in history. During the savings and loan crisis of the 1980s and 1990s, check fraud led to the failure of more than 700 banks in the United States alone.
Control fraud can also be committed by a government. A country’s leader or leaders siphon off state or local funds and use them for the personal financial gain of government officials, their allies, and other members of the ruling class. This way of controlling fraud turns the country into what is called a kleptocracy.
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