Methods for countering corporate fraud

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C orporate fraud - both hidden, latent, and a very dangerous phenomenon for the society. It harms companies and citizens, leads to serious financial damage, and seriously impairs the investment attractiveness of the country. Many foreign companies refuse to enter into business relations with those Russian business entities in whose activities they could suspect signs of corporate fraud. In addition, a significant part of assets is removed from legal circulation, due to which the state budget and the beneficiaries of a particular company are deprived of part of the income.

Corporate fraud concept

The need to protect business owners from corporate fraud is due to the stabilization of the business environment. The era of market redistribution, raider takeovers, corporate wars is a thing of the past, the legal field has stabilized, and owners, already confident in their status, would like to protect themselves from asset theft by hired managers and employees. The general term for such theft - corporate fraud - means a wide range of forms and methods of theft and misappropriation of assets and property.

The Russian legislator did not give an independent definition of the term, it is necessary to proceed from its doctrinal interpretation or describe it with several features inherent in it. This is one of the problems that makes it difficult to prosecute. The second difficulty is associated with the fact that the methods of combating the postscripts, embezzlement, and overestimations that have remained unchanged since the times of the USSR, which have long been existing in the practice of law enforcement agencies, turn out to be ineffective in situations with distortion of financial statements, business fragmentation, money transfer abroad and similar technological and modern fraud methods. The Soviet school makes it possible to detect a significant number of crimes in the field of public finances with their planning and control, but in order to determine corporate financial reporting fraud, sometimes it is necessary to turn to foreign experience. In foreign practice, corporate fraud is recognized as three types of violations:

  • misstatement of financial statements;
  • corruption at the corporate level;
  • theft and withdrawal of assets. Here, such structures as "fraud", "misappropriation or embezzlement", "deliberate bankruptcy", "abuse of authority" can be charged.

In Russian practice, each of these acts will have its own criminal law qualification, and some types, for example, accounting fraud, are prosecuted only in the field of financial organizations and banks. The rest of the market participants in the commission of this type of offense will get off with liability under Art. 15 of the Administrative Code of the Russian Federation. In addition to the above, the theory calls this type of fraud as the use of an official position for personal purposes, not accompanied by a direct withdrawal of assets, it is called by practitioners "non-price corruption."

Typical characteristics of corporate fraud

The investigation, having already gained some experience in detecting crimes with signs of corporate fraud, identifies the following typical signs:

  • the assets of a certain corporate entity become the object of theft. Thus, the victims are not citizens in general, but individuals involved in business. These are shareholders and owners of companies, in situations with commercial banks and financial institutions - their clients and depositors;
  • persons who commit a crime are related to a corporate entity on the other hand, they are its insiders;
  • the process of committing fraudulent actions is almost always accompanied by the introduction of deliberate distortions in the financial statements, in the statements drawn up for the purpose of placing shares on the organized securities market;
  • ways of committing crimes can be classified according to the types of operations and the level of responsibility of the offender.

The combination of these features is typical for almost every case of corporate fraud. It should be distinguished from theft, which almost never carries an intellectual component.

Based on the classification proposed by the ACFE, you can see the "fraud constructor", a collection of mandatory elements from which any complex and organized corporate fraud is easily assembled. It:

  • all types of theft and misappropriation of assets, examples of which may be revaluation and withdrawal of real estate, creation of fictitious debt, issuing fictitious invoices to a company, waste, etc .;
  • independent corrupt actions (bribes, kickbacks, bribes, gratitude, payment for general patronage - all situations in which a top business manager uses his official position contrary to the interests of the company to influence financial and business operations in order to obtain personal gain;
  • financial reporting fraud - various mechanisms that allow financial reporting to be distorted in order to improve it, for example, to indicate more revenue or higher asset values in order to deceive an investor, lender, business buyer, and deterioration of certain indicators and the formation of a loss (tax crimes ).

Subjects of corporate fraud

Each of the definitions of corporate fraud recognizes as its subject the head, officer or employee of the company. In some corporate regulations, such as the Anti-Corruption and Fraud Policy of PJSC Gazprom Neft, legal entities can also become independent entities.

The following classification can be made:

  • corporate entities - legal entities or specializing in fraud, or specially created as instruments of its commission;
  • shareholders and owners of a business, withdrawing assets from it to the detriment of other owners;
  • executives and top managers who create schemes of theft of property and cause damage to shareholders;
  • hired employees.

Often, various actors create stable organized groups, and their activities are extremely difficult to identify and suppress, since they may have much more experience in forging documents and hiding evidence than auditors or investigators charged with investigating a case.

Damage from corporate fraud

Do not assume that the only type of damage from corporate fraud can be lost assets or money. There are also intangible losses, which include lost reputation, difficulty in hiring qualified personnel, and much more. The following main types of damage can be distinguished:

  • direct withdrawal of assets, their write-off, withdrawal abroad;
  • decrease in the value of shares of companies in case it becomes known that their value was artificially overstated;
  • loss of lucrative contracts;
  • loss of funds when concluding contracts on unfavorable terms;
  • loss of customers;
  • loss of market share.

All these consequences are also accompanied by lost profits. As practice shows, it is unlikely that corporate fraudsters can recover funds in order to compensate for the damage caused, since it is possible to bring them to court in extremely rare cases, especially when the organizer of the scheme is the owner or top manager of the business.

Audit and corporate fraud

In Europe and the USA, audit companies specializing in identifying errors and financial fraud have created a special line of audit activity, the so-called fraud auditing. This area of activity has developed standards and practices designed to identify typical cases of fraud, as well as find new developments, since the mechanics of theft of funds are constantly being improved. A series of major frauds that rocked foreign markets in the 1990s and 2000s required a major overhaul of corporate law. Proactive audit of fraud has become the cornerstone of the corporate fraud prevention system. It does not exclude corporate control and ordinary audit, which reveals the reliability of reporting, but is an independent service that is actively developing in its market sector.

But it cannot be said that even this industry has succeeded in developing a generally accepted methodology for detecting and preventing corporate fraud. A set of measures is used, more or less effective, some of them have already been tested on Russian soil. The International Association of Certified Fraud Examiners (ACFE) is responsible for coordinating the activities of various audit firms, individual researchers, detective agencies and other professionals. This organization brings together more than 40 thousand members in most countries of the world, who have set themselves the goal of reducing the role of the so-called "white collar crime". The branch of the association has been operating in Russia since 2007.

There are practically no own Russian methodological developments in the field of combating corporate fraud, so one has to focus either on the traditional methods of investigation adopted by law enforcement agencies, or on audit standards.

Methods for countering corporate fraud

The practice has developed several groups of methods for combating corporate fraud. They are divided into three groups:

  • methods of prevention;
  • detection methods;
  • methods of investigation.

In each of the three groups, organizational and technical methods can be distinguished, and also the operational method of investigation can be considered as a separate one.


Organizational methods based on a developed legal and methodological framework play the greatest role in the detection and prevention of fraud in corporations. As organizational preventive measures, there are:

  • adoption of regulatory documents describing all types of prohibited acts and measures of responsibility for them, familiarization of personnel with these documents;
  • creating a corporate culture in the company that completely excludes the possibility of committing fraud;
  • wide practice of bringing to responsibility, both disciplinary and criminal, of all perpetrators;
  • introduction of norms into the contracts of employees to simplify their dismissal;
  • creation of divisions in the company responsible for control: economic security and internal audit services.

In addition, it is necessary to regularly conduct separate and complete checks of the company's activities, audits, and inventory as identification measures. Engaging an independent auditing company will provide an evidence base on the basis of which law enforcement agencies will be able to initiate a criminal case.


Technical methods can be divided into software and others. Software means all software products that allow:

  • protect information of a financial nature from misrepresentation;
  • prevent information leakage from the company;
  • identify errors, inconsistencies in reporting and databases, indicating the fact of fraud.

The information perimeter can be protected by installing software products that have the characteristics of DLP systems and SIEM systems. In addition, it is necessary to control the access levels of employees, use such degrees of protection of financial information and passwords that will help identify each fact of unauthorized interference and promptly inform the security services about it.

When analyzing reporting and documentation, the Project Expert program will help to identify some points, auditors have their own methods that allow comparing indicators of different years and finding peak distortions that may indicate a crime and asset stripping.

Operational and investigative

Among the methods of preventing corporate fraud, operational ones play an undeservedly small role. This is due to the fact that in extremely rare cases, companies make a decision at the stage of identifying an act that has signs of fraud, to invite specialists from law enforcement agencies. The independent use of operational methods for the security services of companies can become a pretext for violating the law. However, measures such as:

  • equipment of premises with video control and sound recording systems;
  • test purchases;
  • a non-invasive study of the lifestyle of an employee suspected of fraud.

All these methods help to turn suspicion into confidence, but in most cases, unlike the actions of the investigating authorities, their results cannot become admissible evidence for the court in a criminal case. Involvement at the earliest stage of the bodies of inquiry and investigation will make it possible to use their developed analytical apparatus, software products, methods of monitoring SMS messages and conversations in social networks in order to collect the necessary evidence. Professionals in the process of carrying out operational actions will be able to identify:

  • direct perpetrators of the crime and their accomplices;
  • motives for committing a crime, not always they are only enrichment, sometimes external pressure, threat, intimidation become significant factors;
  • the mechanism of the crime, the nature and amount of damage.

It is important that law enforcement agencies can work closely with internal actors responsible for protecting the company from fraud. These may include:

  • security personnel;
  • auditors, auditors;
  • representatives of the members of the Board of Directors exercising corporate control.

The frequent use of fly-by-night firms in schemes is becoming a specific feature of Russian business. Their identification is possible when working in close contact with the tax authorities. Often, the identification of one private scheme leads to the opening of an expanded network, within the framework of which cashing out, money laundering, and bribery of government officials take place. Comprehensive work will help clear the Russian market of many rudiments of the 90s.

Corporate fraud is a serious social problem. Methods of its identification and prevention should exclude damage to the interests of society and citizens, and this will lead to an increase in the country's investment attractiveness in the world arena, greater tax discipline, a significant replenishment of the budget and hindering the financing of criminals.