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Complete Guide on Fraud

16 November 2020

Complete Guide on Fraud

Luckily, at Company Rescue, we haven’t come across that many instances of fraud, though we know it is very prevalent out there, hence we discuss here, how to prevent it, the causes and the different types.

Fraud? What is it?

Fraud is explained as wrongful or criminal deception, to make a personal or financial gain. The activity is intentional.

There are many types of fraud, which can be split into consumer fraud, employee fraud and fraud against businesses or government institutions.  Consumer fraud refers to customers having money or information stolen, without consent. For example, telemarketing scams, identity theft and credit card fraud. Employee fraud refers to employees violating their duties to the company i.e selling trade secrets, confidential information or taking company funds. Business fraud refers to tax evasion, counterfeiting, bankruptcy fraud and insurance fraud – to name but a few.

Common methods of fraud include forged signatures, stolen credit cards, unauthorised payments, theft of cash and pretending to be another person.

Fraud is like a scam. For examples of the most common types of scams companies face, see our article here.

Looking at company fraud in particular, further examples include; physical and monetary company assets being stolen or used without authority and misrepresentation of financial statements to make companies appear better than what they actually are.


Though these aren’t exact, there are some common factors that can result in fraudulent actions. These should be carefully avoided:

  • Poor accounting and auditing
  • A ‘non-care’ attitude
  • Complex organisational structures
  • Lack of direction and clarity
  • Lack of transparency
  • Greed

How to prevent it?

You cannot stop fraud, but you can put methods in place to reduce it and make it harder for fraudsters to act.

  • Implement internal controls such as auditing, supervision and the use of strong passwords.
  • If you see anything which causes doubts (emails, messages, post), then do not open it. Question it and investigate to see the legitimacy.
  • Get security software
  • Do not hand out personal details or confidential information unless you know and trust the receiver.
  • Implement anti-fraud policies.
  • Know who you are dealing with.
  • Don’t believe everything, no matter how attractive it seems– always check and ask for clarification. Ensure you have a full understanding before agreeing to anything.
  • Be cautious ALWAYS!

Fraud and Insolvency

In insolvency, fraud can occur by means of fraudulent trading. Directors can be intent on defrauding creditors and customers; hence this distinguishes fraudulent from wrongful trading. (See our page here). Whilst going through insolvency proceedings, directors will withdraw company assets. Likewise, fraud can happen when directors prevent insolvency officers from carrying out their jobs.  The intention must be proven for a charge of fraud. Severe penalties exist – being fined, disqualified and held personally liable. 

What is quite common is for an insolvency process to uncover fraud or theft from the business itself.  A business gets into trouble when cash goes missing. If the directors are kept in the dark it might be too late to save the business when cash has been diverted which was to pay HMRC for instance.  In these instances HMRC can be sympathetic but ultimately the directors are responsible for ensuring good financial controls.  More often than not though it is a director or financial director who has control of the money that carries out the fraud.

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