Corporate fraud remains a significant threat to businesses of all sizes, undermining financial stability and eroding trust.
Fraud is estimated to cost UK businesses £190 billion every year. Whether it is a small-scale embezzlement or a high-profile case, the human, financial and reputational impact can be devastating.
But how can businesses prevent fraud? Understanding the issue and implementing effective strategies is key.
What is corporate fraud?
Corporate fraud is any deceptive or illegal activity carried out by individuals within or associated with an organisation for personal or financial gain. These actions violate ethical standards and often result in significant financial, legal, and reputational harm to a business.
Fraud can occur at any level of an organisation, from entry-level employees to top executives. Many cases are discovered through audits or whistleblowing, highlighting the critical role of individuals who alert authorities or initiate investigations.
Types of corporate fraud
These are types of corporate fraud to know about:
Falsifying financial statements
Falsifying financial statements involves deliberately manipulating accounting records to misrepresent an organisation’s financial position or performance. This can mean inflating revenues, hiding debts, or falsifying assets.
Examples:
- Overstating profits to attract investors or secure loans.
- Creating fictitious transactions to hide losses.
Embezzlement
Embezzlement refers to the misappropriation of funds or assets entrusted to someone in a position of trust, normally for personal gain.
Examples:
- Skimming cash from the company’s accounts.
- Submitting fake invoices to divert payments into personal accounts.
Insider trading
Insider trading occurs when securities are bought or sold based on confidential information not available to the public, giving the trader an unfair advantage.
Examples:
- A manager learns of an upcoming merger and purchases stock to profit from the subsequent price increase.
- Selling shares ahead of negative financial disclosures to avoid losses.
Bribery
Bribery is offering, receiving, or soliciting something of value to influence a decision or action for personal or organisational benefit.
Examples:
- Bribing public officials to secure government contracts.
- Offering kickbacks to bypass procurement rules.
Cyber fraud
Fraudulent activities carried out using digital platforms to gain unauthorised access to data or finances.
Examples:
- Phishing scams to steal sensitive financial information.
- Hacking into systems to divert funds or access confidential data.
Procurement fraud
Fraudulent activities in the procurement process, including manipulation of contracts or supplier relationships for personal gain.
Examples:
- Inflating contract costs and pocketing the difference.
- Collusion between employees and suppliers to award contracts unfairly.
Tax evasion
Illegally avoiding tax obligations by underreporting income, inflating expenses, or hiding assets.
Examples:
- Falsifying financial records to underpay corporate taxes.
- Using offshore accounts to hide taxable income.
How can you prevent corporate fraud?
To mitigate fraud risks, businesses must adopt a multi-faceted approach which includes prevention, detection, and response.
1. Establish a robust corporate culture
A strong corporate culture rooted in ethics and transparency discourages fraud. Employees are less likely to engage in unethical practices if they see integrity valued at all levels.
When leaders demonstrate accountability, honesty, and ethical decision-making, they inspire similar behaviour in their teams. Ethical decision-making during meetings can be demonstrated by openly discussing how organisational values influence key choices.
2. Implement comprehensive training programmes
Regular training on recognising and reporting fraud empowers employees to act as the first line of defence. Employees trained to spot irregularities are a first line of defence. Please see our Fraud Awareness Training for Employees and Fraud Awareness Training for Managers.
Ensure employees are aware of the whistleblowing procedures and the protections available to them. Effective whistleblower systems encourage reporting without fear of retaliation. Highlight protections under UK whistleblower laws to build trust and ensure compliance.
3. Strengthen internal controls
No single individual should have control over an entire financial or procurement process. Splitting responsibilities (for instance, between approval, execution, and review) minimises the risk of fraudulent activities going unnoticed.
Audits are instrumental in uncovering irregularities. Organisations should ensure compliance with regulations and best practices to detect potential issues early.
The regulations governing audits are:
Companies Act 2006
The Companies Act 2006 establishes the legal framework for financial reporting and auditing. It mandates that certain companies must have their financial statements audited annually to ensure compliance with accounting standards and to detect potential fraud or misstatements.
The Act also defines the roles and responsibilities of auditors, including their obligation to report fraud.
International Standards on Auditing (ISAs)
The International Standards on Auditing (ISAs), adopted by the Financial Reporting Council (FRC), provides a comprehensive framework for conducting effective audits.
Key standards include:
- ISA (UK) 240 – focuses on auditors’ responsibilities to detect and respond to fraud.
- ISA (UK) 315 – outlines requirements for identifying and assessing risks of material misstatements.
- ISA (UK) 330 – offers guidelines for designing and performing appropriate audit responses to those risks.
UK Corporate Governance Code
The UK Corporate Governance Code applies to listed companies and emphasises the importance of robust internal controls and effective risk management systems. It also recommends that audit committees oversee financial reporting processes and ensure the independence and effectiveness of external auditors.
Bribery Act 2010
The Bribery Act 2010 requires organisations to maintain accurate financial records to prevent and detect bribery-related fraud. Non-compliance can result in severe penalties, underscoring the importance of regular and thorough audits as a preventive measure.
4. Leverage technology
Employ software solutions that monitor transactions and flag suspicious activities. Advanced software solutions can monitor transactions, analyse patterns, and flag suspicious activities. Machine learning and artificial intelligence tools enhance the accuracy and speed of fraud detection.
With cyber fraud becoming a prevalent threat, protecting sensitive data is paramount. Implementing robust firewalls, multi-factor authentication, encryption, and regular system updates can safeguard against breaches and data manipulation.
For further guidance on how to protect your organisation from cyber threats, please read, Top 10 cyber security threats 2024.
5. Monitor and investigate proactively
Large organisations, particularly those operating in high-risk industries such as finance, healthcare, or procurement, benefit from having an internal team trained in corporate fraud investigation.
These teams can quickly respond to suspicions of fraud, ensuring a thorough and confidential process. Their expertise helps minimise operational disruption, identify systemic issues, and protect the organisation’s reputation.
Smaller organisations or those with lower exposure to fraud risks may not have the resources or need for a dedicated fraud investigation team. Depending on the level of risk, it may be advisable to partner with external fraud investigation firms or consultants on a retainer basis.
Regardless of whether an organisation has a dedicated fraud investigation team, proactive monitoring is essential. Regular reviews of financial and operational processes help uncover vulnerabilities before they escalate.
6. Promote transparency and accountability
Employees should know exactly where to report concerns and feel confident their reports will be acted upon. Transparency in handling complaints fosters trust and engagement.
This can be achieved by:
- Setting up multiple reporting options, such as email, hotlines, or anonymous online portals.
- Clearly communicating these channels during onboarding, training, and regular internal communications.
- Ensuring that the reporting process is simple, confidential, and accessible to all employees, regardless of location or seniority.
A transparent reporting framework encourages employees to act promptly when they observe suspicious activities, reducing the risk of fraud going unnoticed.
Learning from corporate fraud examples
According to UK Finance, more that £570 million was stolen by fraudsters in the first half of 2024.
Examining corporate fraud examples helps organisations identify common pitfalls and improve their own systems. From financial misrepresentation to procurement fraud, real-world cases highlight the importance of vigilance, ethical leadership, and robust internal controls.
National Trust fraud scandal
One of the biggest corporate frauds of 2024 affected the National Trust. In September 2024, an ex-employee was jailed after defrauding the National Trust of over £1 million. Richard Bryant was employed as a building surveyor by the National Trust and he fraudulently issued invoices for work that was not done to two companies that were linked to his sons.
The fraud was uncovered during a procurement review, emphasising the need for thorough supplier vetting, segregation of duties, and regular audits to detect anomalies. Organisations must ensure suppliers are legitimate and their connections to employees are transparent, supported by periodic procurement reviews.
The case underscores the need for strong internal controls and oversight. Roger Bryant exploited his position of trust to authorise fraudulent invoices, highlighting the importance of dual approval systems and independent oversight. Bryant’s attempt to mislead investigators by hiding paperwork and fabricating evidence also highlights the need for robust storage policies and audits of critical documents.
The role of corporate fraud investigations
Corporate fraud investigations are critical for organisations to address suspicions of fraud promptly and effectively.
Timely investigations minimise financial losses, prevent the escalation of fraud, and ensure evidence is preserved. A thorough approach not only uncovers the facts but also identifies the root causes, allowing organisations to address systemic weaknesses or individual misconduct.
Collaboration is key to successful investigations. Internal teams such as compliance, risk management, and internal audit often initiate the process, leveraging their understanding of organisational systems. Legal advisors ensure the investigation adheres to regulations, protects the organisation from liability, and prepares for potential legal proceedings.
For major cases, external authorities like the Serious Fraud Office (SFO) or Financial Conduct Authority (FCA) may be involved, ensuring the investigation is comprehensive and credible.
Fraud Awareness Training
Preventing corporate fraud requires a cohesive effort involving culture, training, technology, and proactive monitoring.
At Praxis42 we offer Fraud Awareness Training for Employees and Fraud Awareness Training for Managers. Both courses provide staff with the essential knowledge they need to help them identify and prevent fraud in the workplace.
Fraud Awareness Training for Managers enables leaders to identify an organisation’s key areas of fraud risk and implement prevention strategies. It also enables team leaders to manage incidents of fraud.
Find out more about Fraud Awareness Training for Employees and Fraud Awareness Training for Managers on our website, or talk to our friendly team on 0203 011 4242/ info@praxis42.com to find out how we can tailor courses to your organisation and activities.
Adam Clarke
Managing Director (Consulting)
