Fraud Risk Management Plan: How-to's And Most Common Types

Posted by D&V Philippines
Jun 08, 2020
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Deliberate falsification of financial records is what constitutes a fraud. Now more than ever, as the technology advances rapidly, a fraud risk management plan can keep your financial records on track.

Business owner devising a fraud risk management plan

Related: Fraud Risk Management: Are You in Danger of Payroll Fraud?

Financially savvy business owners try their best to veer away from fraudulent transactions by implementing strict financial accounting policies in cash management. Some even go as far as utilizing modern cloud technology or hiring third-party financial services providers to check on their financial health. 

While these are all effective ways to prevent fraud, you still need to look into the different types of fraud in order to identify them. Here are the most common types of business financial fraud to look out for:

Types of Business Financial Frauds 

  • Payroll Fraud 

The most common fraud that businesses like yours could be a victim of is payroll fraud. This is the type of fraud that takes place when there is a lack of transparency in handling payroll records. The good news is, there is a way to work around payroll fraud. All you have to do is to reconcile your balance sheets with your payroll records. This way, you can have a way of checking if there is a possible discrepancy between the two.


  • Financial Statement Fraud 

Financial statements reflect your financial standing as a company. Understating your liabilities or overstating your income, assets and revenues is considered financial statement fraud. 

Once you do not disclose the actual numbers in your reports, your financial condition remains unknown. Whether you’re in the green or in the red, it’s impossible to forecast your future performance without honest financial statements. 

Misinterpreting your numbers can be avoided by having outsourced accountants to cross-check your records. With an outside person tracking your finances, you have a fresh set of eyes that will look after your revenue. 


  • Multiple payment fraud 

As your business grows and your books become more complex, there comes the need to hire a bookkeeper to update your financial records. The problem with this is that entrusting this task to another person could be an avenue for fraud. When we say multiple payment fraud, this often refers to that instance when your bookkeeper or the person taking charge of your financial resources issues more than one check when there is just a single check requirement. The second check goes straight to the bookkeeper’s personal account.

This kind of fraud could be a little difficult to catch but if you have two people working on your books and perhaps a third party financial service provider to audit your business finances, you won’t have any problem. 


  • Asset Misappropriation Fraud 

Physical burglaries are parallel to asset misappropriation frauds in businesses. This type of fraud is stealing a company’s asset or property for personal gain. 

Asset misappropriation is linked to insider fraud since it is a breach of the firm’s trust. To steal funds, they forge checks and write it for themselves, which do not reflect on the books. 

Through a thorough fraud risk assessment, asset misappropriation can be extenuated. Necessary controls and procedures can be put in place to mitigate the risk. 


  • Affinity fraud 

Another type of fraud is one that is committed right under your nose by someone you trust. This person could be a relative or a very close friend. What usually happens is that business owners entrust all of the check payments and cash management tasks to that person. And that’s when the opportunity to commit fraud comes in.

To avoid such type of fraud, do not rely on the ties of family and friendship where your business finances are concerned. Rather, hire a professional financial services provider and instill a check-and-balance policy so you can always keep an eye on things. You could also run an internal financial audit to ensure the accuracy of your financial records.


Fraud is a very serious matter. A well-structured and organized fraud risk management policy diminishes your chances of losing an enormous amount of money due to erroneous number-crunching or inside job.

Aside from a fraud risk management plan, having a third-party assess your financial records is a way to go. Let us help you with this challenge. D&V Philippines offers advanced finance and accounting support to firms all over the globe.


This post was first published 5 October 2015 and edited 08 June 2020


Our Outsourcing: How to Make it Work guide explores how you can utilize accounting and finance outsourcing to drive growth to your business and add value to your processes.