Corporate Fraud

Corporate Fraud

Corporate fraud mainly consists of activities undertaken by any individual or a company that are being done in a dishonest or illegal manner. Its basic aim is to give an advantage to the perpetrating individual or company. The fraudulent activities go beyond the employee’s stated position, and are marked by their complexity and economic impact on the business, other employees and outside parties.

There are many regulatory provisions for curbing the issues of corporate fraud like Indian Contract Act 1872, Indian Penal Code 1860, Prevention of Corruption Act 2013, Prevention of Money laundering Act 2012, The Companies Act 1956& 2013, Information Technology Act 2008, and Prohibition of Insider Trading and many more laws.

It can be of many types but the common form of frauds are as follows; 1 Theft of cash, physical assets or confidential information; 2 Misuse of accounts; 3 Procurement fraud; 4 Payroll fraud; 5 Financial accounting misstatements; 6 Inappropriate journal vouchers; 7 Suspense accounting fraud; 8 Fraudulent expense claims; 9 False employment credentials and 10 Bribery and corruption. These types of frauds are creating complexities and hurdles for the corporate sector.


Generally, in the issues of corporate fraud, company favours in-house investigations and the HR managers are increasingly being called upon to conduct it. The question of whether to bring in law enforcement, a regulatory agency, external audit teams, a private law firm, or handle the matter in-house is an open one. This decision is fact and case specific, and will depend upon the duration and breadth of the potential problem as well as potential in-house investigatory skills. Many times in-house investigations are coordinated with outside counsel for the better and fast result. If the company initially decides that it will conduct an internal investigation in place of an external investigation, the roles of the individuals involved in the investigation should be clearly delineated and they need to do investigation as per the rule. The benefits of this investigation are; (1) Heightened knowledge about the company’s business, employees, and procedures; (2) it controls the publicity and (3) there is unbiased view of the fraud. This type of investigation will also help in preventing possible problems with the Fair Credit Reporting Act (FCRA). Simply, the FCRA applies to workplace investigations, but does not apply when the investigation is done completely in-house. There are some disadvantages to keeping the investigation in-house which are as follows:-  lacks of attorney-client privilege, Insufficient training in carrying out fraud investigations, possible conflicts between the company’s well-being and management’s professional obligations; and possible loyalty issues between the investigator and the employees and lack of support. Although some of the disadvantages are not damaging to the company generally, the existence of such factors when conducting an in-house investigation might be problematic.

What are the precautions taken by all companies?

  1. Know Your Employees- Company needs to take be aware of the activities of the employees. Employees can be seen as the basic pillar of company and company runs due to the hard labours and efforts of the same. Many times it has been seen that the employees are the accused in the issues of the fraudulent activities. The trust needs to be maintained from both the sides.
  2. Make Employees Aware/Set up Reporting System- It is pertinent to note that the awareness is very important and by making employees aware of all these activities help in establishing not only faith but also make employees cautious of these activities.
  3. Implement Internal Controls- Every Company needs to be internally strong. Its internal controls need to be very stringent so that no one can dare to do the fraudulent activities and if he does any single activities like that can be easily caught by the company itself.
  4. Monitor Vacation Balances
  5. Hire Experts
  6. Live the Corporate Culture.


Corporate frauds and scams greatly erode corporate wealth and put the company always under threat. Corporate India as a whole has a vested interest in preventing and minimizing corporate frauds and scams but the problem still exists. Independent directors on audit committees provide one of the best ways of reinforcing internal audit and annual statutory audit. Their independence must be strengthened. With respect to incentives, in end executive compensation is about ethics and can only be sparingly controlled. The solutions to corporate fraud must be comprehensive and all encompassing. The law needs to be stringent in this regard.

Author: Prity Kumari,
Central University of South Bihar, 2nd year

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