Preventing Fraud In Troubled Companies

 


 

bob-bates-50x50.jpg  Starting Out 

Economic downturns and recessions are notorious for encouraging fraud. As new and prospective fraud examiners, it's imperative you become aware of the various fraud risks that can occur and the red flags that indicate a fraud in progress.

If you're ever called upon to audit a company or examine its practices to ensure the absence of fraud, you must be prepared to diligently cover all the bases. If you're lucky enough to discover there is no fraud afoot, you still need to quickly take the lead and implement prevention measures to deter any future possibility of fraud.

DESPERATE TIMES 

In today's economy, many companies are suffering financial losses and diminishing liquidity, which have presented conflicts with their primary lenders. Banks have come under increased scrutiny, which in turn has increased the pressure on borrowers.

In private companies, owners will feel added pressure to preserve what's left of their companies and livelihood. They will be desperate to stay afloat. When there are extreme creditor/lender pressures, an owner might not see any legal way out of the mess. That's when the environment becomes ripe for fraud.

It's somewhat common for debtors to set up bank accounts at new banks and try to defraud the original lender by siphoning funds to the new location. Debtors might do this for two reasons: to defraud a bank outright or to keep a failing business alive. Fraudsters sometimes open accounts out of state or at other institutions where the primary lender won't be able to get its hands on the funds.


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