Fraud

Fraud occurs in three ways: asset misappropriation, corruption, and financial statement manipulation.

Asset misappropriation is the most common way that fraud occurs. Another term for this is theft. Employees steal assets such as cash or inventory. Or they might inflate their expense reports. There are hundreds of ways that people steal from companies.

Corruption mainly occurs in the form of bribery, also called kickbacks. Usually outside parties such as vendors pay bribes to those inside a company with the power to purchase. The cost of the bribe is often recouped by inflating invoices sent to the company.

Financial statement fraud occurs when company employees intentionally alter financial statements for their own personal gain. They do so usually to receive bonuses that are tied to company profits. Or they might juice up profits to increase stock prices; then they profit by selling personally owned stock.