Forensic — fitness for your business or the most common fraud schemes.

3 typical fraud schemes, or how do people steal in companies?

Each business is specific and requires an individual approach. But that’s not the case with corporate fraud. Majority of the schemes performed under the same scenario, only certain details and amounts of losses change.

Despite this, it would seem, predictability, companies still suffer from fraudulent employees. Due to their manipulations, Ukrainian business loses on average 15–50% of its annual revenue. Given the current crisis, this is a disastrous amount.

Three schemes

Frankly speaking, there are a whole lot of ways to deprive the owner of his own money. But among them there are schemes that are used more often, because it is easier for a fraudster to implement them. In this article, I will tell about three such schemes.

1. Assets misappropriation.

The general scenario of fraud is as follows: a fraudulent employee, using his official powers, arrogates company’s property to himself. This is not necessarily cash; movable / immovable property, warehouse stock, production can be appropriated. At the same time, everything is noted “beautifully” in the documentation, as it should be, but in reality the assets no longer belong to the original owner.

Anyone can steal in this way, both an average employee and a top manager. But unlike an ordinary storekeeper, for example, a manager has more powers, so he is able to steal more.

My team and I have uncovered hundreds of such fraudulent schemes in businesses from a wide variety of industries. One of my latest investigations was carried out at the Ukrainian office of a large Austrian company. In the course of the inventory check up, a shortage of three production machine tools, worth 300 thousand euros each, was revealed. The director explained that one machine tool was given as a donation to an institute in the ATO zone, the second was sold to another company, which went bankrupt and could not fulfil its obligations. The third was written off due to defects.

At first glance, all the arguments are logical, but further investigation showed that the previously mentioned bankrupt company did not have its own assets, and its director was a so-called straw man (a nominal manager without real powers). At the same time, the director, who made a muff of three machine tools, bought herself a new Lexus in the same period. All these facts quite clearly indicate fraud.

2.Financial statements distortion.

In other words, deliberate overstatement or understatement of figures in key financial documents. Benefits from this are obtained in different ways. Some, underestimating sales figures, for example, put the remainder in their pocket. Others raise their profit columns to get a larger salary bonus.

We were just investigating a similar case before the New Year holidays. Our customer himself discovered fraud at his manufacturing enterprise and a $ 3 million hole. He resorted to us to find out how the money disappeared and who is to blame.

The investigation revealed a whole collusion. The chief accountant in conjunction with the director and the head of the security service — the key persons of the company for a minute! — created dummy sole proprietors. These sole proprietors allegedly provided consulting and brokerage services to our client’s company, receiving huge rewards for this. In reality, of course, there were no services.

How was the $ 3 million shortage revealed?

It is very banal — the chief accountant gave away herself. According to the documents, her enterprise was presented as unprofitable due to the crisis and the pandemic COVID-19. Things were going so “badly” that the employees were no longer paid. But the chief accountant, in such circumstances, suddenly buys herself a new Honda car. The owner then wanted to make an inspection and demanded access to the client-bank payment program. The accountant, in return, urgently went to the hospital with heart attack.

After all the subsequent investigations and proceedings, it turned out that our customer’s company had been showing constant profit all this time. The perpetrators were punished in accordance with Art. 190 part 4 of the Criminal Code — large scale fraud with imprisonment up to 6 years and confiscation of property.

3. Corruption schemes and kickback schemes

This is the most common type of corporate fraud. Typical for procurement managers and the commercial department. Implemented in different ways.

There was a case when one of the shareholders, who was in the operational control of the company, created a related legal entity. Through this legal entity, he purchased raw materials at an inflated cost. In other words, the person was simply withdrawing money from the company. He also created another liaison person through which he sold finished products, but at a reduced price.

Such a scheme led to the fact that the company, on the one hand, overpaid for raw materials, on the other hand, received less profit for the sale of products to the final consumer than due.

In another case, the procurement manager took money from the owner, in his words, “to bring products to the shelves of retail chains.” In reality, the money ended up in the manager’s own pocket.

Role of forensic

All described cases were investigated with full or partial application of the forensic procedure. Its purpose is to identify fraudulent schemes within the company. For this, special methods like OSINT (open source intelligence — collection of information based on open sources) and HUMINT (human source intelligence — extraction and investigation of information, received from people) are used. Both elements are part of methods of information collection as part of corporate intelligence.

Also, the “secret buyer” procedure is often used in forensic projects to identify fraudulent activities. In this case, the forensist disguised as a buyer makes a purchase from a suspected manager or other employee of the company in order to verify the purity of his intentions.

The procedure itself is extremely effective. With its help, you can learn a lot of facts. In one of our investigations, in such a way, we learned that sales managers in one company are not interested in increasing sales. This was evidenced by their unwillingness to issue the maximum discounts, allowed by the company’s policy to potential customers.

In another case, the “secret buyer” procedure revealed that the manager was renting out premises at a reduced price. The rest of the amount was paid in cash and settled in the pockets of the fraudster, which ultimately caused irreparable damage to the enterprise.

Basic forensic rules:

  • Trust, but check. Managers and business partners should be regularly checked in order to avoid situations with the occurrence of fraud;
  • • Withdrawal of the owner from operational control is equal to the loss of the business. Do not entrust all management issues to subordinates — sooner or later this will turn into problems;
  • • Helicopter view. Try to evaluate all the processes taking place in the company as objectively as possible. Forensic is one of the ways to do this;
  • • People steal from every company. The only question is the materiality of the amounts. This is the so-called forensic catch.
  • The most important rule is that a company is obliged to undergo a fitness check-up in the form of a forensic procedure every year, since a business without profit is immoral. Essentially, forensic is synonym with the word — profit.



Auditor, Fraud investigator Co-Owner, Partner, Forensic services at Crowe Erfolg Site: Member ASIS, ACFE, ASCP

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Artem Kovbel

Auditor, Fraud investigator Co-Owner, Partner, Forensic services at Crowe Erfolg Site: Member ASIS, ACFE, ASCP