The corporate fraud

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The corporate fraud

Even if a large part of the companies are defrauded by their own employees, corporate fraud is a less discussed topic in the public space, especially since it is often not a priority for entrepreneurs or managers. Fraud is a threat to many industries in the economy, and the most important step in combating it is to raise awareness of this phenomenon in a company, and then debate and improve the mechanisms with solutions for prevention, investigation and control.

In Romania, among the most targeted areas for committing fraud are insurance, retail and energy. Most companies try to solve fraud cases internally, even if they do not have the necessary expertise. Because an investigation to identify and prove fraud can take a long time, the chances of an internal solution are much lower than hiring experts from outside the company.

What we must remember is that the impact of the fraudulent act is not limited to the material damage, but also to other aspects of major importance for companies, such as: affecting the company’s image, loss of trust in customers or even declining market share.


Types of fraud

In the business environment we encounter three types of fraud. Very often practiced is the internal fraud, also called occupational fraud, i.e. the one committed by the company’s own employees, the highest percentage being from middle and top management. 

External fraud it is committed by people or groups outside the company – customers, suppliers, distributors or even criminals and hackers. There is also the mixed fraud, which refers to the situation in which both external and internal fraudsters are involved. However, it is a typology that affects companies to a much lesser extent.

The most common types of fraud are based on various strategies practiced worldwide, which over time have been perfected by “specialists”. For example, the conflict of interest scheme is one of the most well-known types of fraud in our part of Europe: situations in which employees influence the allocation of contracts for companies owned by them or their relatives. Sounds familiar, doesn’t it? Another common example is in the field of insurance, when insurance policies are manipulated through illicit agreements between employees of the insurance company and customers.  Or there is the classic method and probably among the first invented – theft of goods or embezzlement such as unauthorized use of cars, laptops or various company resources.

According to a report on fraud and occupational abuse, conducted by the Association of Certified Fraud Examiners (ACFE), worldwide, companies, state institutions and non-profit associations lose 5% of revenue annually (on average) due to fraud committed by their own employees.


The fraudster profile

Most occupational fraudsters are between 31 and 45 years old and work in HR or Finance departments, or are part of top management. Almost two-thirds of them have at least a university degree. They have an expensive lifestyle, face financial problems and are often in close relationships with a supplier, a customer or a colleague from another department. Fraudsters usually have no criminal record. Given that corporate fraud is not reported, it is possible that they have committed such crimes in the past. The better it is placed in the company’s scheme, the greater the damage caused.


The managerial control

The purpose of the managerial control is to protect the business by identifying the risks and possible frauds that hover over the company. It is one of the most effective ways to ensure the protection and use of financial resources in conjunction with the achievement of objectives, improving the flow of information and increasing intelligibility. It is an activity of preventing errors and irregularities, eliminating the causes that determine them and improving the controlled activities.

The main results consist in eliminating the risks at the company level, avoiding the frauds at the management level and offering a true image in front of the shareholders.


When is it recommended for a company to use the managerial control?

Among the most justified reasons why a company can consider that it needs such control: the annual turnover exceeds one million euros and there is a minimum of 100 employees, the company is a joint stock company, there is a large flow production company or the company is subject to statutory audit.

Any leader of a company must at some point, successful or declining, depending on the context of each, analyze the activity for which they are responsible to ensure the success of the company, improve the activities of departments or to avoid a future crisis.

The new line of business of managerial control was outlined by CV Expert Contabil during the pandemic, following the expertise with large companies, from LLCs with over 500 employees to joint stock companies with a turnover of millions of euros. Certification of the quality of internal management, verification of financial statements, payroll, correct application and implementation of procedures, elimination of risks, avoidance of fraud at the management level are some of the aspects we include in the analysis. More than 30% of such legal entities face difficulties in these areas.


*Study conducted by PwC’s Global Economic Crime and Fraud Survey 2020.


Cristina Vintila