3 Types of Financial Fraud In Business


Business fraud can have a great impact on an organization. There are different types of fraud with different names, such as bribery and corruption, financial statement fraud and asset misappropriation. It is often the case that fraud instigated by an employee will involve more than one type of fraud. Also, business fraud is not always easy to detect because it does not always show up in a company’s official account system. Generally, the best way to detect this type of fraud is by receiving a tip from a customer, an outside vendor or an employee. Here is a list of the different financial fraud in business:

Asset Misappropriation

This is the type of fraud that involves a staff or member who uses his/her position to take from their employers. This type of fraud is often committed by those trusted to manage the assets and interests of a company.

Asset misappropriation includes theft of company formulas, sensitive data or patents. It also includes theft of credit notes or vouchers, theft of money, check forgery and inventory theft.

Any company that suffers from asset misappropriation will experience cash flow issues in some form. Plus, it can also have a negative impact on staff morale and the company’s reputation. Over 90% of business fraud is associated with asset misappropriation which makes it by far the most common problem every business person encounters.

Bribery and Corruption

Bribery and corruption is the next most common issue related to fraud in a business environment. Even though this type of fraud is less common than asset misappropriation, the average cost of a bribery scheme is significantly higher and likely to exceed over half a million dollars per case.

The type of schemes involved in this aspect is very broad. In most cases, it can include substitution of inferior goods, bribes to influence decision-making, manipulation of contracts, shell company schemes, and kickbacks.

Financial Statement Fraud

This type of fraud is very rare, but it is one of the most dangerous types of fraud as it can lead to the downfall of an organization. This fraud involves an individual or an entity falsifying income statements in an attempt to make a financial gain for them.

This type of fraud can include manipulating a company’s records in relation to more favorable loan terms, an improvement in year-end bonuses, or influencing the stock price.