How to Report Business Fraud? These Are Our Tips

Business fraud is a significant threat to the stability and profitability of companies worldwide. According to the Association of Certified Fraud Examiners (ACFE), companies lose an average of 5% of their annual revenue due to fraudulent activities. This is equivalent to approximately 20 full working days per year being dedicated to managing and mitigating the consequences of fraud in a company operating Monday to Friday.

Reducing costs and optimizing expenses not only improves a company’s operational efficiency but can also offer a crucial competitive advantage. To achieve this, it is essential to understand what business fraud is, how to identify it, and what measures to take to prevent it. In this article, we will explore how to report business fraud, the important steps to follow, and how to prevent these illicit activities. Additionally, we will show you how Silt can help you fight against business fraud effectively.

When Does a Company Commit Business Fraud?

Business fraud can manifest in various ways and at different times in a company’s economic activities. Here are the most common types of business fraud that can occur within an organization and how to identify them (although we have already discussed all types of business fraud in this article):

Fraud by Inflated or Fictitious Expenses

• Employees submit false reports to get reimbursements for nonexistent expenses, such as travel or fuel.
• They divert company money for personal benefit.
  

Embezzlement of Funds

• Theft of company money or assets.
• Manipulation of inventories, unauthorized extraction of equipment, and changes in financial records.
  

Conflict of Interest

• Employees make decisions that benefit their own interests at the expense of the company.
• They hide important information to favor their own businesses.
  

Skimming

• Employees do not report sales income and take the money before it is officially recorded.
• Difficult to detect because the money never appears in the records.
  

Payroll Fraud

• Demanding payments for unworked overtime or including fictitious employees on the payroll.
• Extracting money from the company in a deceptive manner.
  

Diversions

• Changing the course of a beneficial transaction for the company to a result that benefits a specific person.
• Subtle and difficult to detect.
  

Financial Statement Fraud

• Presenting false information in financial statements.
• Overestimating income or assets, underestimating expenses and liabilities, or making hidden sales.
  

Disbursement Fraud

• Claiming payments to fictitious companies, ghost invoices, and fraudulent charges for services not provided.
• Using stolen identities to make illegitimate claims.
  

Corruption and Bribery

• Accepting or requesting favors in exchange for personal benefits.
• Undermining the company’s integrity and leading to legal issues.
  

Tax Evasion

• Not correctly declaring taxes or providing false information to reduce the tax burden.
• An illegal practice that can result in severe fines and damage to the company’s reputation.
  
  

What Are the Consequences of Business Fraud?

Business fraud can have a series of devastating consequences for both the organization and its environment. These consequences can be economic, operational, and reputational, severely affecting the company’s stability and future:

❌ Economic Consequences
The economic impact of business fraud is perhaps the most evident and direct. According to the Emburse Captio Report on Business Fraud 2024, the average cost of fraud in 1,108 analyzed companies is 566 euros annually per worker. This figure reflects a significant loss that, accumulated, can represent a considerable amount for the company, affecting its profitability and investment capacity.

❌ Reduction in Competitiveness
Business fraud increases the company’s operating costs. Losing money to fraudulent activities forces the company to raise the prices of its products or services to compensate for these losses, reducing its market competitiveness. This loss of competitiveness can result in a decrease in market share and a lower ability to attract and retain customers.

❌ Difficulties in Strategic Decision-Making
Accounting and financial information “inflated” by fraudulent activities can distort the company’s economic reality. When data does not reflect the true financial situation, strategic decisions made by management can be erroneous. This lack of accuracy in cost accounting negatively affects planning and decision-making, leading to potential failed investments and ineffective strategies.

❌ Deterioration of Work Environment
Business fraud not only affects the company’s finances but also its work environment. The presence of fraudulent activities can create tensions and conflicts among employees, leading to feelings of injustice and inequality. This deteriorates the work environment, reduces motivation and productivity, and can lead to higher employee turnover.

❌ Damage to Company Reputation
A company’s reputation is one of its most valuable assets. The lack of control, prevention, and detection of business fraud can severely damage the company’s image if these activities come to light. Investor, customer, and supplier confidence can be compromised, leading to business loss, financing difficulties, and a decrease in stock value.

What to Do If You Work for a Company That Commits Fraud

Working for a company that commits fraud can be a difficult and stressful situation. Yes, very stressful indeed. For this reason, we offer you a guide on the steps you can take if you find yourself in this situation.

👍 Collect Evidence
The first step is to have concrete evidence of the fraud. Document all evidence meticulously. This can include emails, financial documents, transaction records, and any other relevant communication. It is crucial that this evidence is clear and strong, as the strength of your case will depend on the quality of the evidence presented.

👍 Use the Internal Reporting Channel
Many companies have internal reporting channels that allow employees to confidentially report irregularities. These channels are often managed by a responsible party who acts as an impartial intermediary. Using this channel can be an effective option, as it allows the company to address the irregularity internally and with due confidentiality.

👍 Inform the Union
If you are a member of a union, communicating irregularities to your union representatives can be a good option. Unions play an important role in protecting labor rights and can intervene to address workers’ concerns.

👍 Contact the Labor Inspection Authorities
In cases of labor irregularities, you can contact the labor inspection authorities. These institutions have the power to investigate and take legal action against companies that violate labor laws. Filing a complaint through a labor inspection can be an effective way to address serious problems within the company.

👍 Report to the Relevant Authorities
In more serious situations or when irregularities involve illegal activities, consider reporting directly to the competent authorities. This could involve filing a complaint with the police, the Public Prosecutor’s Office, or any other government entity responsible for enforcing the law. This step is crucial when fraudulent actions have serious legal implications.

👍 Consult with a Lawyer
If you are unsure how to proceed, it is advisable to consult with a specialized lawyer. A lawyer can provide you with legal guidance, protect your rights, and help you navigate the reporting process safely and effectively.

👍 Company Action Protocol
Once the company is aware of a fraud suspicion, it should activate a pre-defined protocol. This protocol includes:

• Investigation: An in-depth investigation of the case, documenting all evidence and analysis.
• Personal Interview: Interview with the alleged fraudster, presenting all documentation and objective facts.
• Report: Preparation of a complete investigation report, presented to the Disciplinary Committee or the Labor Relations Department.
• Sanction: Issuance of an appropriate sanction, which may include dismissal, criminal or civil proceedings, disciplinary measures, or the implementation of new control processes.
  

👍 Paid Leave
Depending on the severity of the fraud, it is advisable that the alleged fraudster receives paid leave until the process is completed. This ensures that the investigation is carried out without interference and protects the integrity of the process.

How to Report Business Fraud: Key Steps to Follow

Reporting business fraud is a process that requires care and precision to ensure that the report is taken seriously and that appropriate measures are implemented. Here are the most important steps to follow to report business fraud, including available official European channels.

1. Collect and Document Evidence
Before proceeding with the report, it is essential to gather all possible evidence. Make sure to document:

• Emails and internal communications.
• Financial and accounting documents.
• Transaction records.
• Witness testimonies.
• Photos and recordings (if legal and relevant).

All this documentation must be clear and detailed, as it will form the basis of the report.

2. Review the Company’s Internal Policy
Check your company’s internal policies related to reporting fraud. Many organizations have established procedures for handling these situations, including confidential reporting channels and investigation protocols.

3. Use Internal Reporting Channels
If your company has an internal reporting channel, use it as the first step. These channels allow the company to handle the irregularity internally and maintain confidentiality. Internal reporting channels are managed by responsible parties who act as impartial intermediaries.

4. Contact Labor Inspection Authorities
If the irregularity involves labor issues, you can contact the labor inspection authorities. These entities have the power to investigate labor law violations and take legal action against responsible companies.

5. Report to the Competent Authorities
For fraud involving serious illegal activities, it is crucial to report directly to the competent authorities. In Europe, some of the official channels are:

• European Anti-Fraud Office (OLAF): OLAF investigates fraud affecting the financial interests of the European Union. You can file a report through their website OLAF.
• Europol: For fraud involving more serious crimes, you can contact Europol, the European Union agency for law enforcement cooperation.
• National Authorities: Each EU country has its own authorities for handling fraud and economic crimes. It is important to contact local police, the Public Prosecutor’s Office, or relevant regulatory agencies in your country.
  

Inform the Union
If you are a union member, informing your union representatives can be a valuable step. Unions can offer additional support and resources to address the situation.

Consult with a Lawyer
If you have doubts about how to proceed or need specific advice, it is advisable to consult with a specialized lawyer. A lawyer can help you understand your rights and obligations, as well as guide you through the reporting process.

How to Prevent Business Fraud: Our Tips

If you discover that your company is involved in fraudulent activities, it is crucial to take measures to protect yourself and ensure that the correct actions are taken. How can you do this?

Understand and Document Fraud
First, it is essential to understand what constitutes fraud in the context of your company. Review the internal regulatory framework, including expense policies, ethical codes, and conduct codes. These documents should be available to all employees and clearly define what behaviors are considered fraudulent, the severity levels, and the corresponding sanctions.

Training and Awareness
Training is key to preventing business fraud. An adequate training plan should include programs to raise awareness among all employees about company policies, the importance of ethics, and the consequences of fraud. Continuous training ensures that all employees are aligned with the company’s values and understand the established policies.

Implementing Detection Technologies
Technological advances allow companies to use tools for detecting and preventing fraud. Automation and digitization software, such as Silt, can perform detailed expense control automatically and immediately. These tools help establish effective controls and significantly reduce business fraud.

Regular Audits
Audits are effective tools for detecting past fraud and deterring future attempts. Conducting regular audits helps maintain transparency and accountability in the company’s financial management. Audits should be performed by trained and external personnel to ensure impartiality.

Promote a Fair Work Environment
Often, business fraud is a response to perceptions of workplace injustice. It is essential to promote fair and equal treatment for all employees and continuously work to improve the work environment. Job satisfaction and a positive work atmosphere are crucial to reducing incidents of business fraud.

Establish an Anonymous Reporting Channel
An anonymous reporting channel is essential for allowing employees to report fraud without fear of retaliation. This channel must be secure and managed in a way that protects the whistleblower’s identity.

Commitment at All Levels
All levels of the company must be committed to complying with expense policies and preventing fraud. Leaders should lead by example and demonstrate a strong commitment to ethics and integrity.

Why Silt Helps You Fight Business Fraud

Compliance management can be complicated and time-consuming, but Silt simplifies the entire process. Here’s how Silt can help you effectively combat business fraud.

💙 Transaction Monitoring
Manual transaction monitoring is tedious and prone to errors. Silt uses advanced algorithms to monitor transactions in real time, detecting suspicious patterns and alerting to possible irregularities, thus reducing the risk of fraud.

💙 KYC/AML Compliance Verification
Manually verifying identity and KYC/AML compliance is slow and complex. Silt automates this process, ensuring interactions only with reliable partners and compliance with all regulations.

💙 More Efficient Audits
Audits can be costly and lengthy. Silt automates data collection and analysis, facilitating internal and external audits more quickly and accurately, saving time and money.

💙 Risk Management
Identifying and managing risks manually is inefficient. Silt analyzes data in real time, providing detailed reports and predictive analyses that help make informed decisions and quickly implement preventive measures.

💙 Regulation Updates
Keeping up with new regulations is a challenge. Silt automates the monitoring and updating of regulations, notifying the company of relevant changes in real time, ensuring continuous compliance.

💙 Document Management
Manual document management can be chaotic. Silt organizes and archives documents automatically, allowing quick and secure access to information, improving efficiency, and reducing errors.

Silt is the ideal tool to manage your company’s compliance efficiently and securely. With Silt, you can monitor transactions, verify identities, conduct audits, manage risks, update regulations, and handle documents effectively.

Start with Silt today and protect your company from business fraud!