What is Fraud in Business? What Are The Measures To Deduct It?

Fraud is considered as an intentional act that seeks to assure its author or a third party an illegal benefit, to the detriment of a person. At the business level, it can be given through altered financial information, misappropriation of assets, inappropriate expenses and income, among others. The consequences of business fraud are economic losses, image and distrust of customers and investors.

Some examples of business frauds that have occurred in the world have been: Enron, the energy company that tried to hide its true level of indebtedness through complex transactions with its subsidiary companies; WorldCom, a telecommunications firm that recorded expenses of close to 4,000 million dollars as deferred expenses, in order to hide its true losses; Global Crossing, a fiber optic company that recorded revenue as revenue that should be deferred; Vivendi, European communications entity that manipulated its Ebitda in the consolidation of its information with the business group, in order to obtain greater debt capacity; and Adelphia Communications, cable television society that was undercapitalized by granting huge personal loans to its members with the consent of its directors. These, among many others, are some of the most notorious cases in the world of business fraud.

Measures to Deduct Fraud in Business

According to a study published by the Association of Certified Fraud Examiners (ACFE), fraud committed by employees against their employers has increased in recent years. There are two types of fraud that are common among employees of retail businesses.

First is “corruption.” This occurs when an employee uses his position as an employee to personally benefit. A common example is when the employee negotiates high prices with suppliers in exchange for a percentage of that additional difference. Another example occurs when the employee in charge of receiving the shipments of suppliers gives proof that the shipment arrived complete when there were really missing units, dividing the difference between him and the supplier.

The second type of fraud is “embezzlement” or “embezzlement of property.” This occurs when the employee steals or borrows business assets without permission. Some examples include making fake checks, stealing cash from the cashier and using a business vehicle for personal use without authorization. Typically embezzlement begins with something small. If the theft is not detected, then the culprit continues to progress to bigger robberies.

On average, companies lose an equivalent to 5 percent of their sales due to fraud. For a retailer that sells $ 200,000 monthly, this means a loss of $ 10,000 or a total of $ 120,000 over the course of the year. For many retailers that are just covering expenses, the money lost because of employee fraud can make the difference between surviving and going bankrupt. But there are measures that can be taken to minimize or even eliminate fraud and many do not cost anything to implement them. Anyhow, check below the 5 measures to deduct fraud in your business.

1. Establish a Culture Of Ethics in Business

When owners act ethically in their dealings with employees, they set an example to follow. This must be emphasized by recognizing and rewarding ethical acts by employees.

2. Provide Anonymous Mechanisms for Complainants

Honest employees want to report fraud when they see it, but they need a safe way to do it. They do not want to suffer reprisals or they fear that the owner will consider them guilty if they do not have evidence. A very common way of doing this is to establish a phone number for complaints only. There are companies that are dedicated to offering this service.

3. Hire a Researcher Specialized in Detecting Fraud

If you get a clue that you are being robbed, but you do not know how or who, then you need to hire a professional Auditors.

4. Train all Employees in Fraud Detector

There are many free resources to train owners, managers and employees about fraud. ACFE offers many of these resources on its website. If all the employees receive the training, then all will be able to recognize it and act to stop it. It also sends a very clear message to the potential delinquent that he thinks twice before doing something wrong.

5. Implement Monitoring Systems

The controls of cash, inventory, equipment and other assets are essential to minimize the opportunities to commit fraud. If you are not taking account of what you have, you are giving the green light to the fraud. If at this time you do not have internal control systems in place, you should talk to your accountant to help you establish them.