Corporate Fraud: Understanding Risk & How to Mitigate

Overview

Corporate fraud is no longer a peripheral risk confined to large institutions or highly regulated industries. For U.S. organizations, the financial impact of fraud has accelerated sharply in recent years, driven by increased digitalization, remote work environments, and more complex operating structures.

In 2025, U.S. organizations are estimated to have lost an average of 9.8% of revenue to fraudulent activity, up from 6.7% in 2024, a 46% year-over-year increase. This level of loss is materially higher than the global average and represents an estimated $114 billion in total impact across U.S. businesses. Reported fraud losses reached a record $12.5 billion in 2024, with investment scams, business email compromise, and invoice fraud among the most prevalent threats.

Why Fraud Risk Is Increasing

Several structural trends are contributing to the rise in corporate fraud:

· Digital payments and remote workflows have expanded access to systems while reducing in-person oversight.

· Lean finance teams often lack segregation of duties, increasing exposure to both internal and external fraud.

· Growing transaction volume creates more opportunities for fraudulent activity to go unnoticed.

· Cyber-enabled fraud schemes, including phishing, business email compromise, and invoice manipulation, have become more sophisticated.

· Limited internal controls at early or mid-growth stages leave gaps that are exploited as organizations scale.

Notably, nearly one in three financial institutions reported more than $1 million in direct fraud losses in the past year, underscoring that even organizations with existing controls are vulnerable if those controls are not regularly assessed and updated.

The Role of Controls in Fraud Prevention

While no system can eliminate fraud risk entirely, strong internal controls materially reduce both the likelihood and severity of fraud events. From a fraud perspective, effective controls serve two purposes: they prevent fraudulent activity from occurring and detect it quickly if it does.

Key areas where controls are most impactful include:

Segregation of Duties

Ensuring that no single individual controls initiation, approval, and recording of transactions reduces the opportunity for fraud to go undetected, particularly in cash disbursements and expense processing.

Cash and Wire Controls

Formal approval hierarchies, dual authorization requirements, and callback procedures for wire transfers are critical safeguards against payment fraud and business email compromise schemes.

Expense Management and Approvals

Clear expense policies, defined approval thresholds, and periodic review of expense activity help identify irregular patterns and reduce misuse of company funds.

Cyber Risk Awareness

Fraud prevention increasingly overlaps with cybersecurity. Phishing attempts, spoofed vendor communications, and credential theft are often the entry points for financial fraud. Controls must account for both financial and cyber risk vectors.

Deal and Transaction Due Diligence

Fraud risk extends beyond internal operations. Mergers, acquisitions, and investments introduce exposure through incomplete diligence, misrepresented financials, or undisclosed liabilities.

Organizational Assessments and Fraud Risk Mapping

One of the most effective ways to mitigate fraud is to perform a business-specific risk assessment. Rather than applying generic controls, organizations benefit from identifying where fraud could realistically occur based on their size, industry, transaction types, and operating model.

This assessment typically evaluates:

· Where sensitive financial access exists

· Which processes lack independent review

· How approvals are documented and enforced

· Whether controls align with the organization’s current scale and complexity

As companies grow, controls that were sufficient at an earlier stage often become inadequate. Regular reassessment is critical.

Whistleblower Mechanisms and Culture

Beyond formal controls, organizations benefit from establishing mechanisms that encourage reporting concerns. Implementing a whistleblower hotline or anonymous reporting channel provides employees with a safe way to raise issues before they escalate.

Equally important is setting a tone that emphasizes accountability, transparency, and ethical conduct. Fraud prevention is not solely a systems issue, it is also a governance and culture issue.

Remote Work and Evolving Fraud Risk

The expansion of remote and hybrid work has introduced new challenges for fraud prevention. Reduced in-person interaction can weaken informal oversight, while increased reliance on digital approvals creates opportunities for impersonation and unauthorized access.

Organizations operating in remote environments must adapt controls accordingly, ensuring that access management, approval processes, and documentation standards evolve alongside the workforce.

Fraud Risk in Venture-Backed Startups

Fraud risk is often higher in venture-backed startups or early-stage companies than in more mature organizations, not because of intent alone, but due to the structural pressures and operating environments these companies face.

Research suggests that up to 20% of venture-backed startups have exhibited indicators of financial, operational, or ethical misconduct. The underlying drivers are frequently tied to the high-growth expectations placed on early-stage companies and the pressure to demonstrate rapid progress toward ambitious milestones in pursuit of follow-on funding.

Several factors contribute to elevated risk in venture-backed environments:

Growth Pressure and Incentives

The emphasis on rapid scaling and achieving “unicorn” outcomes can create incentives to present overly optimistic performance metrics. In some cases, this results in the inflation of key performance indicators (KPIs), aggressive revenue recognition, or selective disclosure of unfavorable trends.

Limited Oversight at Early Stages

Early-stage startups often operate with lean teams and informal processes. Formal internal controls, independent review, expense policies and structured governance are frequently deferred in favor of speed and execution, increasing exposure to both internal and external fraud.

Organizational Vulnerability

Smaller organizations, particularly those with fewer than 100 employees, are statistically more vulnerable to fraud and often suffer a greater proportional financial impact when fraud occurs. Reliance on founder integrity and trust-based systems, while necessary early on, can become strained as operational complexity increases.

Culture and Risk Normalization

In fast-moving startup environments, the boundary between aspirational projections and operational reality can become blurred. Over time, this can normalize practices that prioritize narrative over accuracy, increasing the risk that misstatements or improper behavior go unchallenged as the organization grows.

External Scam Exposure

In addition to internal risks, venture-backed startups are frequent targets of external fraud schemes, including phishing attacks, invoice fraud, and fraudulent service providers that exploit inexperienced teams and rapidly scaling operations.

While high-profile cases such as Theranos and WeWork represent extreme outcomes, many instances of misconduct never reach public visibility. Regardless of scale, fraud erodes investor confidence, damages employee trust, and can have lasting consequences for founders, stakeholders, and the broader ecosystem.

Recognizing these risks early and implementing appropriate controls as companies scale is critical to maintaining credibility and protecting long-term enterprise value.

Evergold Advisory Fraud Risk Services

Evergold Advisory works with organizations to assess fraud risk and strengthen financial controls in a manner aligned with their size, growth stage, and operational realities. Services include:

· Evaluating whether controls are designed to detect and prevent fraud

· Conducting business assessments to identify high-risk areas

· Reviewing segregation of duties, cash controls, and expense approval processes

· Stress testing current controls and fraud indicators

· Implementing safeguards and controls to strengthen infrastructure

· Supporting diligence processes for transactions and investments

· Advising on whistleblower mechanisms and governance practices

Fraud risk increases as organizations scale, but proactive assessment and disciplined controls significantly reduce exposure. Addressing these risks early helps protect financial integrity, stakeholder confidence, and long-term enterprise value.

If your company could benefit from an assessment on its internal controls and fraud risks or even have instances of alleged fraud, contact us at info@evergoldadvisory.com.