What’s financial fraud?

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Financial fraud is a situation in which the legal and ethical management of financial resources is not carried out. In most countries around the world, this type of fraud occurs due to deliberate decisions and actions taken by people who handle money and other assets on behalf of employers or clients. However, there are some places around the world where the inadvertent mishandling of funds is also classified as fraud and is subject to the same legal censure as any deliberate action.

In most cases, the fraudulent management of financial resources will lead to substantial losses for an investor or corporation. Financial loss is sometimes carefully hidden in accounting records used to track activity involving the resources, allowing it to continue until large amounts of money and other assets are diverted and are no longer under the owner’s control. . Business fraud of this type can be carried out by any company officer or employee with access to corporate resources, and can continue for an extended period of time before becoming apparent.

There are several different forms of financial fraud. The most common approach is to embezzle funds or other resources. For example, submitting an expense report that contains line items for legitimate expenses that never occurred could be considered fraudulent activity. Similarly, stealing inventory or deliberately stuffing payroll disbursements would also be considered unethical and generally illegal activities.

Falsifying financial statements and records would also be considered an example of financial fraud. Known in some countries as “cooking the books”, accounts receivable and payable are deliberately altered to hide the fact that funds taken by the company are diverted for the personal use of someone involved in the accounting process. In some cases, two sets of accounting records may be maintained. One set is true and accurate accounting, while the other is altered accounting that can be used to deflect suspicion of illegal activity when and as necessary.

Financial fraud also occurs when bribes or kickbacks are accepted to manipulate a business decision. In situations where an employee is found to be involved with a competitor, a conflict of interest generally exists and could involve the sale of confidential information for personal gain. With both situations, the individual’s receipt of monetary gains will likely hurt the company financially and result in a loss that otherwise would not have occurred.

Depending on the nature of the financial fraud, a corporation may choose to take legal action to recover lost assets or handle the situation internally. The course of action often depends on the amount of the fraud and how much damage the company believes would be done to consumer trust in the company if the fraud were made public. In some cases, the employee guilty of the fraud may be offered the opportunity to make partial restitution and resign from her position, and the matter is considered closed. At other times, the company may choose to prosecute fraud using all means provided by current law.

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