What is financial fraud? (with photos)

Bribery is a form of financial fraud.

Financial fraud is a situation in which the legal and ethical management of financial resources does not occur. In most countries around the world, this type of fraud occurs due to deliberate decisions and actions made by people who handle money and other assets on behalf of employers or clients. However, there are some places around the world where unintentional mishandling of funds is also classified as fraud and is subject to the same legal censure as any deliberate action.

Recognizing financial fraud often requires reviewing payroll records for signs that laid-off employees are still receiving checks.

In most cases, fraudulent handling of financial resources will lead to substantial losses for an investor or corporation. Financial loss is sometimes carefully hidden in the accounting records that are used to track activity involving the funds, allowing it to continue until large amounts of cash and other assets are siphoned off and are no longer under the owner’s control. Commercial fraud of this type can be conducted by any company officer or employee who has access to corporate resources and can continue for a long period of time before it becomes apparent.

Financial fraud can occur in a number of ways. The most common approach is to divert funds or other resources. For example, submitting an expense report containing line items for legitimate expenses that never occurred could be considered fraudulent activity. Likewise, stealing inventory or deliberately filling out payroll disbursements would also be considered unethical and often illegal activities.

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Falsifying financial statements and records would also be considered an example of financial fraud. Known in some countries as “piling up”, Accounts Receivable and Accounts Payable are deliberately altered to hide the fact that the funds raised by the company are diverted for the personal use of someone involved in the accounting process. In some cases, two sets of accounting records may be maintained. One set is true and accurate accounting, while the other is altered accounting that can be used to deflect suspicion of illegal activity when and as needed.

Financial fraud also occurs when bribes or kickbacks are accepted to manipulate a business decision. In situations where an employee is discovered to be involved with a competitor, there is often a conflict of interest that may involve the sale of proprietary information for personal gain. In either situation, the individual’s receipt of monetary gains is likely to financially harm the company and result in a loss that would not otherwise occur.

Depending on the nature of the financial fraud, a company may choose to take legal action to recover lost assets or handle the situation internally. The course of action usually depends on the value of the fraud and how much damage the company believes it would do to consumer trust in the company if the fraud became public. In some cases, the employee guilty of fraud may be given the opportunity to make a partial refund and resign, and the matter is considered closed. At other times, the company may choose to prosecute the fraud using any and all means provided for in current legislation.

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