Fraud is the intentional misrepresentation of information(financial) by one or more individuals among management, employees, or third parties. Fraud involves collusion, forgery, intentional omissions, misrepresentations, disclosure of incomplete facts, intentional deception or the override of the company’s internal control.


Fraud in a company may involve:

  •  Identity theft e.g. Impersonation of a staff member.
  • Alteration of accounting records or other documents.
  • Misappropriation of assets or theft.
  • Suppression or omission of the effects of transactions from records or documents.
  • Recording transactions without substance.
  • Intentional misapplication of accounting policies or willful misrepresentation of transactions or of the entity’s state of affairs.
  • Fictitious banking.
  • Unauthorized debt elimination/write-off.
  • Phishing.
  • Asset misappropriation.
  • Financial statement fraud.
  • Bribery and corruption.
  • False advertising.
  • Embezzlement taking money under your control that is not yours.
  • Security frauds.
  • Investment frauds.

Who commits Fraud?

Fraud can be committed by anyone with specialized knowledge and criminal intent within or outside the company. It could be:

  • Staff Members

Causes of Fraud

  1. Personal Integrity of an employee is one of the important reasons for fraud. As an individual adopts a strong code of personal ethics and internalizes a standard of high personal integrity, the probability that they will commit fraud is reduced.
  1. Inefficient management. If management is not exemplary to the employees who have less knowledge and responsibility, the employees are likely to do their jobs in a fraudulent manner.
  2. Inadequate employee remuneration structure.

Indication of Fraud

  • Destruction of documents.
  • An Excessive number of photocopies of documents.
  • Too many cash transactions.
  • Lack and failure to make reconciliations to either stock or cash.
  • Missing documents/ lack of supporting documents like receipts and invoices.
  • Excessive bad debts written-off
  • Excessive spoilage or damaged goods.
  • Business dealings with no apparent economic purpose.
  • Excessive changes in operating procedures and accounting principles
  • Unjustified changes in accounting personnel.
  • Lack or absence of internal audit.

Effects of Fraud

Fraudulent activities within a company are likely to have an adverse impact on every aspect of the business. From finances to brand image and employee morale. The effects of fraud may include:

Loss of company Reputation.

Loss of business reputation is inevitable after a fraudulent act. This is the case if the fraud occurred both internally and externally.

For example, a business being victim to fraudulent activity can make customers and clients lose trust in the integrity of the business systems. On the other side of the coin, an internal fraudulent crime can lead customers and clients to lose trust in the company’s workers as well.

Employee or operations morale

Morale within the company can be affected in a variety of ways. For example, employees may feel guilty for not detecting fraudulent activity, affecting their confidence in their abilities. This can have a knock-on impact on employee productivity especially if the fraud is conducted at the managerial level. Ultimately, productivity and efficiency will drop.

Loss of employees

Fraud is a crime and in cases where litigation is involved, the impact is that you could lose employees. For example, if employees are concerned about their own reputation in dealing with your business, they may feel that leaving is the best course for their career since they will have lost trust or faith in the company and the company message. As a result, employees may decide to seek work elsewhere, further increasing the financial strain and resourcing on the company.

Loss of customers

Generally, people are much less willing to deal with a company that has fraud in its history.  Fraud can have irreversible impacts on the client’s mental health and their life. Because of this, even after the whole situation blows over, it’s likely that those involved with your business will be far less confident in dealing with you. Businesses may feel worried about being associated with you, and the effect this might have on their own brand image. Similarly, it’s unlikely that new customers will feel safe to seek your services if you’ve been involved in a fraud allegation. As a result, it’s likely that they’ll find a new business to deal with for the services you offered them.

Huge financial impact

The legal fees incurred to support your business after a fraud allegation can be huge. This, of course, depends on the nature of the fraudulent activity, and whether it was external or internal. It also depends on how many people, including employees, clients, and customers were involved.

On top of this, a business will have to put strict measures in place to avoid this from happening again, whether it involves hiring new talent to deal with accounts and systems properly or putting new processes and checks in place to avoid Fraud.

Some fraudulent activity, especially external cases, can involve monetary fines or even ransoms having to be paid.

 Digital effects

There could be a loss of company data especially when fraud is external and this would mean putting in place new systems and fail-safes to avoid it from happening again. There will also be a lot required to potentially recover lost information, and rebuild the systems to fix the problem. Lengthy audits and staff training will be required to get over the effects of data breaches.

Prevention of Fraud

1. Be skeptical

Thoroughly question all deals, opportunities, documents, transactions, and information for appropriateness, correctness, completeness, and applicability. If it sounds too good to be true, it probably is not true.

2. Know your business inside out

Have a thorough understanding of your business so you know how it operates, the staff you employ, the products and services it provides, your target market and your business, and your legal and regulatory obligations. This will help you to timely detect fraudulent activity.

3. Know your customers and suppliers

When you understand whom you do business with, you can spot any business request or transaction that looks wrong for that customer or supplier and may be fraudulent.

Conduct due diligence using a risk-based approach, such as checking the customer or supplier details you have on file, as well as online searches.

4. Identify areas where your business is vulnerable to fraud.

This involves the identification of potential ways in which a fraudster targets your business, both internally and externally, and testing the systems you already use to reduce risk. It should be ensured that staff knows systems of fraud prevention and that they are regularly reviewed.

5. Develop a fraud detection, prevention, and correction strategy.

Think about the right fraud prevention and detection strategy for your business: it should detail controls and procedures. Talk about fraud with your staff, suppliers, and other contacts. Your staff needs to understand the risks and how losses affect the business and themselves.

6. Design of an internal control system.

The overall design, structure, extent, comprehensiveness, and content of the internal control, including the procedures, and activities as well as the ongoing operations and events must represent the underlying intent of the company’s mission, vision and organizational objectives and are free from significant deviation of operational efficiency.

7. Develop an action plan

While prevention is better than cure, it’s important for you and your business to be prepared for the worst. Having an action plan in place will help limit your losses to fraud.

8. Train employees to always report fraud when they get suspicious of fraud taking place they should always report t immediately