Corporate Fraud

  • Posted by admin
  • 16 September 2013
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Corporate fraud occurs when a member of a company’s staff, usually a high-level manager or director, behaves dishonestly and abuses his or her position to misrepresent the company’s true financial standing. Sometimes the individual benefits financially, and sometimes the fraud is committed to keep the company afloat. Crimes like these can be complex in their formation, and often incorporate numerous staff members.

Consequences of Corporate Fraud

Cases of fraud, particularly among companies that operate under articles of incorporation, have increased dramatically over the last decade. These kinds of crimes have occurred most often in the computer hardware and software industries in recent years.  They can go on for extended periods of time, as the criminals do not register the true financial information in the official record. This lack of proper registration of correct financial information in bookkeeping records makes it more difficult for auditors to detect financial crimes. Companies involved in fraudulent activities can end up declaring bankruptcy, having to sell their material assets or being removed from a stock exchange.

Reasons for Committing Corporate Fraud

There are a number of reasons why high-level financial executives choose to commit corporate fraud. One reason is to incorporate additional earnings, at least on paper, into the company’s records in order to meet quarterly or annual shareholder expectations. Another reason would be to hide the fact that the company is deteriorating financially, to bolster profits for the purpose of obtaining a loan or to register more revenue on financial reports to increase management compensation. Another reason fraudulent behavior has increased in recent years is due to the shaky economy and the need for company officials to hide decaying operations to try to keep the company going.

Women’s Roles in Corporate Fraud

A study was recently published in American Sociological Review regarding the role of women in the commission of fraud in the business world. The study found that only 9% of high-level executives caught committing such crimes were women. Also, in the formation of the plan to steal money from a company, women set out to steal less than their male counterparts. On the other hand, the incorporation of the theft of smaller amounts of money into daily job tasks was found to involve more women, 45% of the total in fact. Theft by bank tellers, bookkeepers and others responsible for the registration of receipts into a ledger was more often found to involve women.

Remedies for Corporate Fraud

How can companies stop corporate fraud? One remedy suggested in Fraud Magazine is the establishment of a hotline in which whistle blowers can leave anonymous tips without fear of retaliation. The tips can then be investigated to determine if crimes are actually being committed. In addition, companies that seem to be bleeding money but cannot find the source might consider offering a monetary reward for a whistle blower who comes forward with information.

Regardless of the reasons for the commission of crimes in the financial arena, fraudulent activity has been shown to be devastating to companies. It has affected the lives of thousands of members of the workforce through job loss and disintegration of pension funds. Companies are beginning to see the importance of stronger security measures designed to minimize opportunities for fraudulent behavior.

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