Mitigating Corporate Fraud Risks: Identifying the Culprits and Safeguarding Your Organization
Corporate fraud is a pervasive and expensive problem in today’s business world. This kind of activity takes many forms, from embezzlement to financial statement fraud, and it can occur in virtually any industry or organization.
Perpetrators can be employees, managers at any level, or executives. The results can be devastating, causing significant damage to an organization’s finances and reputation. The Association of Certified Fraud Examiner’s estimates that organizations lose about 5% of revenue each year due to fraud, meaning prevention and detection are critical to protecting the organization’s assets.
If you or anyone in your organization is under investigation for corporate fraud, it’s critical that you speak with a fraud defense attorney right away to minimize the impact on you and your business.
Common Types of Corporate Fraud
Corporate fraud comes in many forms, but the most common type is embezzlement. This occurs when an employee steals money or assets from the company and may include falsified vendor payments, unauthorized credit card use, and more.
Corporate fraud may also include:
- Financial statement fraud
- Bribery
- Corruption
- Intellectual property theft
- Insider trading
Corporate fraud is a huge target for federal agencies (such as the FBI, SEC, and IRS) because it causes lost revenue for the government and investors. So, if you’re being investigated by one of these agencies, you’ll want to obtain a highly experienced white-collar criminal defense lawyer as soon as possible.
Who Commits Corporate Fraud?
Corporate fraud can be committed by anyone within the organization, whether an entry-level employee or a top executive. Still, some individuals are typically more likely to engage in fraudulent behavior than others. As such, some members of the organization are more likely to be targeted by investigators.
For example, individuals with access to financial records or company assets may be more likely to commit embezzlement or financial statement fraud.
According to the Association of Certified Fraud Examiners, almost half of all reported frauds in a 2022 study occurred in one of these four departments:
- Operations (15%)
- Accounting (12%)
- Executive/upper management (11%)
- Sales (11%)
Red Flags and Indicators of Corporate Fraud
While it’s impossible to prevent all instances of corporate fraud, you may be able to mitigate the risk by being aware of red flags that can indicate fraudulent activities. Unexplained financial transactions, changes in an individual’s behaviors or lifestyle, and increased use of cash or untraceable payment methods may be indicators.
The culture and practices within the organization can also become red flags. For example, a lack of internal controls or oversight, inadequate segregation of duties, or a culture of secrecy within the organization can create favorable conditions for fraud.
Once an organization suspects or detects fraudulent activity, it’s critical to respond quickly and decisively. Your first call should be to an experienced fraud attorney who can help you determine the appropriate next steps and mitigate the damage to your organization and its reputation.
Safeguarding Your Organization: Preventative Measures
Implementing strong internal controls and oversight is one of the most effective ways to prevent corporate fraud. These may include regular audits, proper segregation of duties, and a clear code of ethics and conduct for all members of the organization to follow.
Additionally, organizations should establish clear policies and procedures for handling financial transactions, employee expenses, company credit card use, and other potential risk areas.
Other proactive measures may include:
- Conducting periodic background checks on employees
- Providing regular ethics training
- Establishing whistleblower protection
- Setting up a reporting hotline or other means for individuals to report suspicious activity
The Role of Legal Professionals in Mitigating Corporate Fraud Risks
Your legal representation plays a critical role in mitigating corporate fraud risks. They can provide expert advice and guidance to your business or organization.
Attorneys can conduct internal investigations, advise you on compliance with legal and regulatory requirements, and represent the organization in legal proceedings. They can also help set up proactive measures to prevent fraud in your organization.
Trust An Expert to Help Safeguard Your Business from Corporate Fraud Risks
The attorneys at Gregor Wynne Arney, PLLC possess a wealth of practice area expertise and experience in high stakes litigation and arbitration. If you’re being investigated for corporate fraud, our Houston white-collar criminal defense lawyers can help you every step of the way.
Our team is made up of experienced professionals with backgrounds including a federal prosecutor, former FBI investigator, and certified fraud examiner so we are highly qualified to handle even the most complex fraud cases. Contact us today to speak with one of our proven white collar criminal defense attorneys.