Fraud Prevention and Investigation in Vietnam: Guidance for Foreign Investors

Fraud prevention is crucial for foreign investors in Vietnam. The country remains one of Southeast Asia’s most compelling investment destinations, driven by strong manufacturing growth, expanding consumer markets, and continued integration into global trade networks. Yet as operations scale, so does exposure to operational, financial, and compliance risk, particularly fraud.

For foreign investors, fraud in Vietnam is rarely overt. More often, it emerges quietly through weak internal controls, excessive trust in local partners, or rapid expansion without governance maturity. The costliest cases typically arise from internal misconduct embedded in everyday business processes rather than external cyberattacks.

Common fraud scenarios in Vietnam operations

Foreign-invested enterprises frequently encounter patterns such as:

Procurement and vendor collusion

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Enhancing internal audit and risk management

Local procurement teams may collude with suppliers to inflate invoices, manipulate bidding processes, or accept kickbacks. This often surfaces through unexplained cost overruns, lack of valid supporting documents, preferred vendor concentration, or unusually consistent pricing outcomes.

Example: A manufacturing subsidiary discovers that a purchasing manager has steered contracts to a related-party supplier for years, resulting in material costs 10–15 percent above market benchmarks.

In another case, a purchasing manager conspired with a sham supplier with no lawful business activities to fabricate documentation to conceal the true origin of illicit goods.

Payroll and ghost employee schemes

In labor-intensive sectors, falsified timesheets or ghost workers can drain operating budgets, especially where HR and payroll functions are loosely segregated.

Example: Factory supervisors submit inflated headcounts during peak season, pocketing wage differentials through third-party labor agents.

Revenue leakage and cash skimming

Retail and distribution businesses face risks from underreported sales, inventory diversion, or unauthorized discounts granted in exchange for personal benefit.

Example: A cashier in a retail store intentionally fails to record certain cash sales in the point-of-sale (POS) system. While inventory is physically handed over to customers, the transactions are either not recorded or later voided without authorization. The cashier then pockets the cash, resulting in underreported sales, inventory shrinkage, and direct cash losses for the company.

Financial statement manipulation

Local finance teams may defer liabilities, accelerate revenues, or conceal losses to meet headquarters targets – masking operational weaknesses until they become systemic.

Example: At the year-end, to meet the headquarters’ annual profit target, a local finance team deliberately delays recording supplier invoices and accrued expenses until the following financial period, while recognizing revenue from unfinished or unapproved sales transactions. As a result, the financial statements overstate profits and understate liabilities, temporarily masking operational inefficiencies and cash-flow pressures until the misstatements accumulate and require correction.

Compliance-related fraud

Improper customs declarations, tax underreporting, or facilitation payments may be rationalized as “local practice,” exposing parent companies to regulatory penalties and reputational damage.

Why fraud prevention requires strategic attention

For executives, fraud is not merely a financial issue; it is a governance and resilience challenge.

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Unchecked fraud:

• Erodes margins and distorts performance reporting
• Undermines trust between headquarters and local management
• Increases regulatory exposure across tax, customs, and labor authorities
• Weakens exit valuations during M&A or restructuring
• Signals deeper operational immaturity to investors and partners

In Vietnam’s relationship-driven business environment, informal practices can coexist with formal compliance structures. Without active oversight, this creates space for misconduct to normalize over time.

Building an effective fraud prevention framework

Successful foreign investors treat fraud prevention as part of operational design, not a reactive audit function. Key pillars include:

Establishing clear governance from day one

Establish a policy and define approval matrices, authority delegation, and reporting lines early. Avoid concentrating financial, procurement, and operational decision-making within the same individuals or departments.

The control architecture must be built before scale – not retrofitted afterward.

Segregating duties across core functions

Ensure separation between purchasing, receiving, payment authorization, and accounting. Even in lean setups, basic role separation dramatically reduces the risk of fraud.

Implementing data-led monitoring

Use analytics to identify anomalies in vendor pricing, payroll trends, inventory movement, and expense claims. Continuous monitoring often detects issues long before traditional audits.

Localizing internal controls without diluting standards

Global policies must be adapted to Vietnam’s operating realities – language, documentation norms, and regulatory procedures – while maintaining core compliance expectations.

Conducting periodic independent reviews

Rotational internal audits, vendor due diligence, and forensic reviews provide objective visibility into risk areas, especially during periods of expansion or leadership change.

Enabling whistleblowing and ethical reporting

Anonymous reporting channels, culturally adapted training, and visible executive support are critical to surfacing issues employees may otherwise hesitate to raise.

Quotation collection policy

Develop a policy requiring the collection of a minimum number of quotations before making supplier selection decisions for a given product or service. Quotations must be obtained from both third-party suppliers and related parties, where applicable.

For example, some companies require three to five quotations for internal approval. This approach helps ensure that a specific item or service is not sourced from the same supplier over an extended period unless there is a clear and justifiable business rationale.

When fraud investigations become necessary

Fraud investigations in Vietnam require sensitivity to labor laws, evidence handling, and data privacy requirements. Effective investigations typically combine:

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• Digital forensics (emails, accounting systems, transaction records)
• Financial reconstruction
• Employee interviews conducted in Vietnamese and English
• Validating actual activities performed by relevant departments against approved policies and procedural guidance
• Vendor and related-party background checks

Equally important is remediation: tightening controls, restructuring teams, and, where appropriate, engaging authorities or pursuing civil recovery.

Strategic perspective for foreign investors

Fraud risk rises most sharply during growth phases – new factories, new markets, or rapid hiring. Companies that succeed in Vietnam embed fraud prevention into their broader market-entry and expansion strategy.

This includes:

• Aligning compliance frameworks with operating models.
• Treating internal controls as value protection, not overhead.
• Integrating fraud risk into location strategy, partner selection, and M&A due diligence.
• Maintaining consistent oversight from regional or global leadership.
• Establishing fraud awareness and detection measures from day one, rather than waiting until the business reaches a larger scale.
• Regularly conducting internal audits, performed by the Group’s Internal Audit function or by an independent third party.

In Vietnam, trust is essential, but it must be supported by structure.

Vietnam fraud risk matrix by business function

Comparative risk overview: Manufacturing vs services fraud in Vietnam

Investigating manufacturing fraud: Asset-heavy, labor-driven risk

Manufacturing fraud in Vietnam is typically operational in nature.

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Most common scenarios:

• Inflated raw material pricing through supplier collusion
• Ghost workers or falsified overtime
• Inventory shrinkage and scrap diversion
• False maintenance or tooling invoices
• Manipulated production yield reporting

Why manufacturing risk is elevated:

• Large hourly workforces
• Multiple physical control points across production, warehousing, and logistics
• Heavy reliance on local vendors
• Decentralized factory decision-making with limited central oversight
• Complex accounting, tax, customs, and import/export documentation requirements

Executive control priorities:

• Biometric attendance and payroll reconciliation
• Vendor rotation and price benchmarking
• Cycle counts and warehouse surveillance
• Production KPI-to-input reconciliation
• Independent factory audits (internal or third-party)
• Leveraging AI tools or implementing an integrated ERP system to streamline operations and strengthen controls

Investigating fraud in the services sector: Revenue integrity and financial reporting risk

Service fraud tends to concentrate around financial controls and third-party behavior. Fraud is more likely to distort financial performance reporting, creating false confidence at headquarters until issues surface during audits or exits.

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Most common scenarios:

• Underreported sales or unauthorized discounts
• Expense reimbursement manipulation
• Agent or distributor kickbacks
• Premature revenue recognition
• Related-party consulting arrangements

Why services risk manifests differently:

• Higher reliance on trust-based selling models
• Fewer tangible assets to monitor
• Greater autonomy at branch or country level
• Pressure to meet regional revenue targets
• Increased exposure to regulatory interpretation

Executive control priorities:

• Centralized billing and revenue systems
• Approval thresholds for discounts and rebates
• Agent due diligence and commission transparency
• Independent financial reviews
• Contract governance frameworks
• Segregation of duties among departments
• Leveraging AI tools or implementing an integrated ERP system to streamline operations and strengthen controls

Conclusion

Vietnam offers a significant long-term opportunity. However, sustainable success depends on governance maturity alongside commercial execution.

For foreign investors, proactive fraud prevention anticipates misconduct and builds transparent systems that protect enterprise value, support confident decision-making, and enable scalable growth.

Organizations that invest early in internal controls, independent oversight, and localized compliance frameworks position themselves to operate in Vietnam with clarity, resilience, and credibility, turning risk management into a competitive advantage.

Managing tax in Vietnam is critical for FDI companies to stay compliant with local regulations, GST requirements, and global standards such as IFRS, navigate complex filings, and apply correct tax treatments. A well-structured tax process helps to avoid penalties and stay 100% compliant.

Luy Doan

Assistant Manager, Tax

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