Behind the Scenes of White-Collar Crime: What Business Owners Should Know About Fraud

When it comes to something as seemingly esoteric as the all-encompassing word "fraud," it can be easy to fall into the trap that it will never happen to you. This is undoubtedly the case for individuals, but it can also happen to businesses that become overly reliant on technology and the skills of their IT and accounting departments (if they are fortunate enough to have one in the first palace). However, the fact of the matter is that for most, fraud is something that can strike at any time and in varying degrees of severity. If you want to avoid becoming yet another grim statistic regarding this issue, then this post will give you plenty of information you can use to ensure that you understand what it entails, how to spot it, and ultimately, nip any instances in the bud before they become a much larger problem.

Legal Consequences Of Fraudulent Behavior

It should really go without saying that fraud in any guise is something that is typically not just frowned upon in society but can also be punishable by varying legal sentences ranging from long-term custodial sentences to equally devastating fines. In fact, if you check out Josh Smith Legal website, you will see that according to the pros themselves, even if you're not subject to incarceration, a criminal record can still have devastating consequences for your life. In reality, the sentence a fraudster might receive will vary depending on a raft of factors but can include the following:

• Criminal charge: this is usually reserved for the most serious frauds that involve large amounts of money and damage to a business. It will also depend on the type of fraud carried out, as some are national crimes that might automatically come with some form of custodial sentence.
• Civil lawsuit: A civil suit can be enacted by the aggrieved party and can be created in conjunction with a criminal case. These are typically intended to retrieve some or all of the amount that was lost due to the fraud itself.
• Regulatory fines: Depending on the industry and regulatory body involved, fraudulent behavior can result in substantial fines and penalties. Government agencies can impose these fines. In some extreme cases where a company has been found to be negligent in allowing fraud to occur, the company may also be fined for not adhering to strict data and privacy laws.
• Reputational damage: A company's brand can be seriously tarnished by fraudulent activity, therefore erasing consumer confidence, lowering revenues, and making acquiring investors difficult. Recovering from this reputational harm can be challenging, and it might affect the company in the long term.

Common Types Of Business Fraud

Fraud comes in many guises, from the low-quality crime that involves simply stealing data or money that isn't well protected to highly sophisticated rackets that include the use of cyber criminals well-versed in the act of entering into a business internal systems and performing a variety of nefarious actions. Generally speaking, though, you can categorize white-collar fraud into the following categories:

• Asset misappropriation: Arguably, the most common type of fraud is asset misappropriation, in which case corporate assets are stolen or used for personal advantage. Typical instances are skimming cash before it is recorded, turning in false expense reports, payroll fraud, including ghost workers or exaggerated hours, and inventory theft or usage.
• Financial statement fraud: If you want to discuss white-collar crime, this is perhaps the whitest-collar example you'll come across. It generally involves fudging the numbers on a financial statement in order to look more attractive to investors and anyone else with a vested interest in the business.
• Customer fraud: This is when a business or someone within the organization purposefully scams their existing customer base. Aside from the usual punishments dished out by regulatory organizations, the company risks severe reputational damage that can be tricky to come back from.
• Vendor fraud: Either a business is attempting to defraud their vendors in order to lower the costs associated with them, or the vendor is artificially boosting or cooking the numbers in order to increase the value of their orders to a particular company.

Key Indicators Of Fraudulent Activity

The key to combating fraud in your organization is to remain as proactive as you can in order to discover and resolve instances before they compound into a far worse situation. However, while larger businesses are able to fall back on their IT departments and sophisticated technology, what are smaller operations meant to do? Fortunately, there are plenty of options for all sizes of business, and when adhered to correctly, they can ensure that you remove most of the temptation of fraud occurring and catch anything that may already be happening:

1. Unexplained discrepancies
2. Unusual transactions
3. Lifestyle changes (of those with whom you trust your company finances)
4. Unexplained shortages
5. Secretive behavior
6. Complaints from customers or vendors
7. Lack of independent audits
8. Weak internal controls

If you spot any or all of these points, it's worth immediately hiring an outside audit service to go through your operations with a fine-toothed comb to try and discover what's happening. Not all of these points immediately point to fraud (it could just be poor accounting on your side), but they should be enough to initiate some kind of response to get to the bottom of the issue.

Importance Of Internal Controls Implementation

A lot of fraud tends to occur when there is an opening that someone with less desirable intent is willing to exploit for their own illicit gain. This might be from the overuse of cash to perform specific actions to weak internal controls that stop those who shouldn't be able to access things from accessing them. To combat this, you can reduce the use of cash within your company whenever possible by setting up permission-based access to the more sensitive parts of the business so that it is easily traceable back to those with permissions if anything does happen to go awry.

Whistleblower Policies: Encouraging Reporting Safely

If you really want to combat fraud, you need to allow your employees to inform those responsible for taking action about anything untoward they observe without fear of repercussions. This should be encouraged by allowing whistleblowers to remain anonymous and free from retribution from those at the top who could be part of the problem. By allowing your staff to inform you of any wrongdoings, you can sometimes avoid the problems leaking out to the public and causing you more harm than the initial fraud.

White-collar crime is a massive problem that occurs in most countries worldwide, including those with strict regulations and punishments for such cases. Nevertheless, by understanding what it is and how to spot it, you can rescue the chances of becoming a victim and keep your business functioning as it should.

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