5 Types Of Fraud That Can Shake Your Organization To Its Core

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The impact fraud can have on an organization can be monumental. Not only can it have a significant financial impact, but, depending on the type and severity, it can also destroy an organization. While there are many types of fraud, there are five that can cause the most damage.

1. Financial statement fraud

Although it’s less common, financial statement fraud can be the most damaging to a company. Overstating revenue, earnings, and assets – along with understating liabilities (or just plain concealing them) - are the most common activities found with this type of fraud. Enron and WorldCom are two semi-recent, high-profile cases involving financial statement fraud.  

2. Asset misappropriation

Some of the more common types of fraud fall into the category of asset misappropriation, which closely-held businesses are most susceptible to.

Skimming of cash and cash larceny

This type of asset misappropriation consists of taking cash before it even enters the company’s accounting system. It’s very hard to uncover because it requires finding evidence of something that hasn’t been recorded yet. And, it doesn’t require a lot of sophistication to execute, making it a popular choice among those that commit fraud. Examples of asset misappropriate include, check tampering, accounts receivable skimming, fake billing schemes, payroll schemes, fake or duplicate expense reimbursement schemes, and inventory schemes.

Misuse of company assets

Another common type of asset misappropriation is the misuse of company assets. Not only is it problematic since it’s the unauthorized use of company assets, but it can also open up the company to significant liability.  

3. Theft of intellectual property and trade secrets

As our world becomes increasingly driven by information and technology, an increase in the theft of intellectual property and trade secrets is on the rise.  

4. Healthcare, insurance, and banking

Healthcare, insurance, and banking are all industries that have billions of dollars flowing through their systems, making them prime targets for this type of fraudulent activity. Bogus health insurance claims, business insurance claims, and fraudulent bankruptcies are all ways individuals commit this type of fraud.  

5. Consumer fraud

Individuals targeted through cons, bogus telemarketing, email, Ponzi schemes, phishing, ID theft, and other schemes, are all victims of consumer fraud. Whether it’s an organization system breach or bogus tax returns filed for large refunds, consumer fraud is on the rise. Companies can also be victims of email phishing scams – especially spear phishing, which involves sending targeted, disguised emails that contain malicious links.   Fraud can take many shapes and can impact an organization in many ways – not just financially. You should know how and where your company may be vulnerable and take the proper steps to protect against vulnerabilities.  

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Eric Larson
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Eric Larson is a Principal at Doeren Mayhew with over 25 years of experience in valuation and forensic accounting.

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