Fraud is a persistent and growing problem plaguing the UK economy. The 2023 Annual Fraud Indicator estimated that fraud costs our economy as much as £219 billion annually. The number of high-value fraud cases rose by 60% year-on-year in 2023. Half of those cases were over £200m.
The risk escalating fraud poses to your business is significant. Working with a fraudulent company could lead to legal, financial and reputational damage. Following the recently passed Economic Crime and Corporate Transparency Act, your company could face fines or prosecution for failure to prevent fraud.
Mitigating against this kind of risk can feel daunting, but it needn’t be.
Discover three early indicators that a company might be partaking in fraudulent behaviour and how Company Watch is tackling fraud head-on.
When companies face hard times, directors face mounting pressure. This can lead to the temptation to commit fraud. We saw a wave of loan fraud following the pandemic. More than 450 directors were disqualified in 2022-23 for abuse of COVID financial support schemes.
Financial distress can be a sign that a company might engage in misconduct. There are signs of financial distress that increase the likelihood of fraudulent activity down the line:
While companies in distress will not always go on to commit fraud, a study revealed that distressed companies are three times more likely to than a company with healthy finances.
One of the key early indicators that a company could be engaging in fraudulent activity is unusual financial transactions. These transactions aren’t always easy to spot, but there are a few things you can look out for:
Unusual transactions are one of the key indicators of accounting fraud. Recent research showed that a staggering 41% of companies commit accounting violations annually. Other key indicators that something might not be right include:
When a company commits accounting fraud, the warning signs are often hidden just beneath the surface. For example, when the billion-dollar energy trader Enron collapsed in 2001, it was the biggest bankruptcy in US history. However there were long-time discrepancies between the company’s profits and cash flow, and the financial statements were incomprehensible.
In November 2001, Enron admitted it had been inflating its income since 1997 by a staggering $586 million. The company filed for bankruptcy in December 2001.
Transparency is vital when it comes to your financial risk assessments. If a company is trying to hide information from you, alarm bells should be ringing. Without transparency, you can’t get a full picture of a company’s performance and overall financial health. This could lead to serious implications for your business, particularly if the company in question is committing fraud.
Here are some indicators where a lack of transparency could indicate fraudulent behaviour:
At Company Watch, we know how daunting the growing risk of fraud can be to your business. We’re constantly innovating to create market-leading products to help you fight back. We’re launching a new early warning tool, Vigilance™, to alert you to any suspicious behaviours that might progress into fraudulent activity.
Vigilance™ is a cutting-edge anomaly detection tool that scans company filings with laser-like precision to identify inconsistencies and flag risks. This will empower businesses to proactively address potential fraud before it happens.
This new early indicator tool will work alongside award-winning and market-leading products. We’ll arm you with the tools you need to fight fraudulent behaviour, so you can make business decisions with confidence.
Stay tuned for the release of Vigilance™ in May 2024!
Find out more about how our platform can transform your financial risk management and protect your business from fraud.