3 Types of Fraud in the Mining Industry

fraud in mining whistleblowing system

fraud in mining whistleblowing systemFraud can occur in companies from any field, both from profit and non-profit companies. According to Report to The Nation 2020, there are 23 industries that experience fraud cases, with the biggest fraud losses occurring in the mining industry — although there were only 26 reported cases of fraud, the losses have reached $ 475,000.

There are at least three common frauds that occur in the mining industry, such as:

  • Financial statement fraud

Almost all countries have laws governing the disposal of mining industry waste to prevent water and air pollution. Mining companies are required to preserve the ecosystem by minimizing the potential negative impacts on the environment.

This regulation requires companies to increase their operational funds by a large amount, such that many of them do not fulfill the responsibility and manipulate the operational funds that should be allocated. Companies can also conduct financial statement fraud by creating fictitious transactions or mark-ups. This fraud scheme  usually occurs when the companies fails to pursue their financial target.

  • Licensing fraud

Mining companies that carry out excavations in heavily forested areas often have to apply for licenses or government permits at a significant cost before they are allowed to cut down trees. However, many companies apply for government permits after they have cleared the land — or some don’t even apply for permission at all because they have falsified permits and licenses.

  • Occupational fraud

Occupational fraud in the mining industry can occur through many modes. It can be as simple as stealing a company’s inventory, to  more complex frauds such as financial statement fraud. The current pandemic has caused the mining industry to face a dramatic decline due to reduced production caused by declining consumer demand. This situation can potentially drive employees and executives to commit fraud to ensure that their income remains stable.

Fraud in the mining industry can occur due to a lack of internal controls both at the headquarters and in the fields. Internal controls need to be implemented comprehensively so that all workers do not overlook the established procedures and to minimize the chance for fraud.

Integrity Indonesia as a company engaged in compliance for more than fifteen years has been trusted by clients in various fields to provide services that support clients in implementing internal controls, such as the Canary Whistleblowing System, due diligence, and fraud investigations. Prevent your company from losses, contact us for more information about other compliance services.

Written by: Aqilla
Image by Khusen Rustamov from Pixabay

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