Fraud investigations can help uncover corruption and risks that can exist within a company. Every business is vulnerable to fraudulent activities, which have evolved over the years and continue to develop. It is essential to detect fraud early before it harms organisations and has greater consequences on their operations. Corporate fraud not only affects companies, but individuals as well.

Each type of fraud has different red flags that one should be aware of. It is important to act quickly to minimise damage and ensure that there is a higher possibility of recovery by reaching out to lawyers and the police.

Types of fraud

Fraud investigations are conducted when some red flags arise. As there are many red flags, the company should learn to recognise what it is looking for. The frequency of fraudulent activity is on the rise and there are different types of fraud a business may face. Some of them that require fraud investigations include:

  • Payroll fraud
  • Financial statement fraud
  • Bribery
  • Tax fraud
  • Asset misappropriation

Payroll fraud

Payroll fraud can be committed by both employees and employers. It occurs when individuals record unauthorised hours or manipulate their timesheets by adding hours they did not work. This type of fraud can be hard to detect as people are usually careful to only report small amounts of extra hours to avoid getting caught. Managers may not be aware of the hours required and may not have systems that check how staff submit their timesheets. Those small add-ons can cost organisations large amounts in the long term as they may go unnoticed.

Payroll fraud can also occur with commissions if employees take credit for sales they did not contribute to. Bigger companies may also be victims of ghost payroll, in which they pay employees who do not exist. This happens when an employee who has control over processes creating a fake person and assigning them a wage.


There are some red flags that may indicate payroll fraud is occurring within a business. For example, the employee responsible for processing the payroll might refuse to leave their responsibilities to someone else. This is where fraud investigations become useful. Employees who never worked overtime before could suddenly record way more hours without managers being notified. It may also be that the percentage of casual employees is increasing and more employees are joining the company. However, there might not be an actual purpose for those employees being hired in the first place.

Installing CCTV can assist with commission fraud as by monitoring the activities of employees and confirming that they attribute only their sales to themselves. It can be a good idea to regularly review which employees join the company and whether terminated employees are still on payroll. 

Financial statement fraud

Fraud investigations may uncover financial statement fraud that went unnoticed. There are many ways to explain financial statement fraud. This type of fraud involves a business – or an employee within a business – recording false figures in financial statements for a purpose, usually to deceive the public, investors or to secure a loan. The goal is to make the company appear in a better financial position and promise a stronger future for the firm. There have been many accounting scandals over the years, with one of the biggest ones being Enron’s bankruptcy in 2001. 

Financial statement fraud can occur when transactions are recorded in the wrong time period, different from the one they actually incurred. Revenues could be recorded early and expenses could be postponed to another time period to increase profit. Entries in the financial statements could also be falsified, with accountants inventing sales, non-existent customers and overvaluing assets while undervaluing liabilities. This will present a very different picture compared to what the company’s position is.


Financial statement fraud can be hard to detect without having complete financial records. You could find that a business is growing while its competitors in the same industry are struggling. It could also be that there is communication between accountants and company executives for the purpose of manipulating financial information. Revenue could appear to increase while the cash flow remains the same and there is a significant change in assets and liabilities from the previous year. Vertical and horizontal financial statement analyses as well as audits, can help detect this type of fraud before it damages the reputation of your organisation.

fraud investigations


Bribery occurs when someone within the company acts against the interests of the business to receive a benefit. An example of bribery includes employees receiving money for the sales of goods from a specific supplier so they can prefer them over other suppliers. A bribe does not have to be monetary. It can be anything of value and might not necessarily be financial in nature. Bribes are given to influence the behaviour of others so the form of the bribe will differ depending on the individual and the scale of the actions expected of them. It is usually an indicator that there is corruption within the business.


Signs of bribery can include unnecessary purchases that are either not useful for the business or of low quality. There could be business partners who offer no value to the company, or employees requesting suspicious payments to third parties. It is crucial to conduct a background check before hiring an employee to avoid potential conflict of interest issues from arising. Monitoring invoices and expenses is also required to identify bribery and minimise or eliminate it.

Tax fraud

Tax fraud occurs when businesses manipulate their documents to report lower profits and pay small amounts of tax or no tax at all. A company could falsify expenses, to depict them as being greater than they are. It might also not report payroll tax that was withheld or wage payments given in cash to employees. Tax fraud can reduce the revenue the government has available and it affects the whole community as money used for their benefit is lower.

Even though tax fraud can help the business pay less money in tax, it might not put it in a good position to borrow money or attract investors as its figures may reflect a worse financial position. Accountants can choose to submit different documents to the government and different statements to investors which leads to more issues.


Some signs of tax fraud could be poor maintenance of financial records and income missing from tax returns. You may notice incomplete financial records and that funds are being transferred to different accounts. This is why it is important to delegate financial responsibilities to more than one employee, as having someone oversee the process can prevent tax fraud from occuring.

Asset misappropriation

Asset misappropriation occurs when a person who is entrusted with business assets misuses them for their personal benefit rather than the company’s benefit. It can happen to businesses of any size and by more than one individual. The assets may vary and could be cash, equipment or intellectual property. An example of asset misappropriation could be an employee using business facilities, such as a company computer and internet connection, during their work hours to run their own business. Anyone can commit this type of fraud but the higher their position the harder it will be to detect it.


DUring fraud investigations, the investigators need to look out for actions that could highlight asset misappropriation is taking place within a business. It could be employees refusing to share their duties with other employees or equipment inexplicably disappearing from the office. There may be bizarre expenses being authorised with no legitimate purpose. It is necessary to audit processes and procedures and consider job rotation to detect asset misappropriation early before it harms the company.

All these types of fraud can result in penalties if discovered. Depending on the type of fraud, the penalty can range from fines to imprisonment.

How to prevent fraud

The issues that arise from fraud can be financial, reputational or legal and they will harm the business regardless of their severity. Employers need to be aware of how the business operates and which areas could be vulnerable to fraud. They need to ensure the employees they hire have a background with no conflict of interest or ulterior motives. Employers should protect their company from cyber attacks and understand who has access to supplier and customer data.

A single employee should not be responsible for multiple tasks within the company, especially if they deal with financial and confidential information. Audits can be performed to minimise the probability of fraud occurring.

Bank accounts and statements could be reviewed to identify any unknown payments or unauthorised amount movements. Businesses should be prepared to deal with all the different possibilities that may arise.

Company policy and training might need to be reviewed to prevent similar incidents from happening in the future. Employees should know how to recognise fraud, how to report it and prevent it. The company policy needs to outline the severity of fraudulent activities and the consequences that could follow.

Fraud investigations are beneficial

Detecting fraud is hard and fraud investigations may be conducted to identify the type of fraud that is affecting your business. Fraud is complex and difficult to deal with due to the various forms it can take. Employers ought to educate themselves on the different kinds of fraud and how they could impact their business.

If they have detected suspicious activity or received an allegation then a fraud investigation should take place to identify what the issue is and who the parties involved are. There is preventative action a business can take to reduce fraud, but the success of those strategies heavily relies on how prepared managers are to deal with issues that they could not have predicted.

At Polonious, we assist investigators with their fraud investigations by providing them with a secure storage space, automated updates, and efficient workflows. If you are looking to speed up the investigation process and lower investigation costs, reach out and request a demo!