Corporate Fraud in Developing Countries

Abstract

The existing corporate fraud literature shows that corporate frauds come in many different forms and vary greatly depending on the legal and governance environment in which a firm operates. Therefore, it is understandable that the frequency and severity of corporate fraud types are highly relevant to some country-specific factors because corporate frauds in each country stem from the country’s unique history, social and commercial environment.

Appendix: Glossary of Terminology (from 2020 Report to the Nation on Occupational Fraud and Abuse)

• Asset misappropriation: A scheme in which an employee steals or misuses the employing organisation’s resources (e.g., theft of company cash, false billing schemes, or inflated expense reports).

• Billing scheme: A fraudulent disbursement scheme in which a person causes their employer to issue a payment by submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases (e.g., employee creates a shell company and bills employer for services not actually rendered; employee purchases personal items and submits an invoice to employer for payment).

• Cash larceny: A scheme in which an incoming payment is stolen from an organisation after it has been recorded on the organisation’s books and records (e.g., employee steals cash and checks from daily receipts before they can be deposited in the bank).

• Cash-on-hand misappropriations: A scheme in which the perpetrator misappropriates cash kept on hand at the victim organisation’s premises (e.g., employee steals cash from a company vault).

• Check or payment tampering scheme: A fraudulent disbursement scheme in which a person steals their employer’s funds by intercepting, forging, or altering a check or electronic payment drawn on one of the organisation’s bank accounts (e.g., employee steals blank company checks and makes them out to themselves or an accomplice; employee re-routes an outgoing electronic payment to a vendor to be deposited into their own bank account).

• Corruption: A scheme in which an employee misuses their influence in a business transaction in a way that violates their duty to the employer in order to gain a direct or indirect benefit (e.g., schemes involving bribery or conflicts of interest).

• Employee support programs: Programs that provide assistance to employees dealing with personal issues or challenges, such as counseling services for drug, family, or financial problems.

• Expense reimbursements scheme: A fraudulent disbursement scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses (e.g., employee files fraudulent expense report, claiming personal travel, nonexistent meals).

• Financial Statement Fraud: A scheme in which an employee intentionally causes a misstatement or omission of material information in the organisation’s financial reports (e.g., recording fictitious revenues, understating reported expenses, or artificially inflating reported assets).

• Hotline: A mechanism to report fraud or other violations, whether managed internally or by an external party. This might include, in addition to telephone hotlines, web-based platforms and other mechanisms established to facilitate fraud reporting.

• Management review: The process of management reviewing organisational controls, processes, accounts, or transactions for adherence to company policies and expectations.

• Noncash misappropriations: Any scheme in which an employee steals or misuses noncash assets of the victim organisation (e.g., employee steals inventory from a warehouse or storeroom; employee steals or misuses confidential customer information).

• Occupational fraud: The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organisation’s resources or assets.

• Payroll scheme: A fraudulent disbursement scheme in which an employee causes their employer to issue a payment by making false claims for compensation (e.g., employee claims overtime for hours not worked; employee adds ghost employees to the payroll).

• Primary perpetrator: The person who worked for the victim organisation and who was reasonably confirmed as the primary culprit in the case.

• Register disbursements scheme: A fraudulent disbursement scheme in which an employee makes false entries on a cash register to conceal the fraudulent removal of cash (e.g., employee fraudulently voids a sale on his or her cash register and steals the cash).

• Skimming: A scheme in which an incoming payment is stolen from an organisation before it is recorded on the organisation’s books and records (e.g., employee accepts payment from a customer but does not record the sale and instead pockets the money).