Financial Fraud in Focus: Protecting Production Budgets

Financial fraud costs run in the tens of millions every year for film and television studios. The results of financial fraud—including losses to the production companies and subsequent effect on public valuation—often have knock-on effects in terms of legal and other costs. 

These costs underscore the critical need for production accountants to enhance their financial oversight and implement robust fraud prevention strategies. As the production landscape becomes increasingly complex, understanding potential financial fraud vulnerabilities is essential for safeguarding studio and investor budgets while ensuring the integrity of production accounting processes.

Setting the stage 

In this article, we are focused specifically on the impact of financial fraud related to commercial, film, or television production. 

Financial fraud means the intentional manipulation or falsification of financial records within a production in order to:  

• Misrepresent true costs, expenses, or revenue associated to the production 
• Facilitate outright theft of funds from the company or crew 
• Misrepresent true costs or expenses associated to payroll

There are two major types of fraud costs commonly faced by film and television productions:

1. Legal and regulatory costs. Meaning costs associated with violations—whether intentional or not—of labor laws, industry regulation, and tax law. Although these costs may not always be the direct result of deliberate fraud, the effects in fines, penalties, and reputational damage are often far-reaching and create a cascading effect on the production itself. We will touch briefly on these types of costs—and some examples of their deleterious effect on production.
   
   
2. Direct or indirect fraud losses. Meaning costs associated with actual theft of funds or wages as part of a production lifecycle. This type of fraud cost is what we are referring to when we say “financial fraud.” 

Why does Wrapbook care about financial fraud & why should you?

Financial fraud is far more than an inconvenience; the impact can be both expensive and extensive. The story of financial fraud overall is a costly and production-stifling one.

1. Financial fraud is expensive

Financial fraud—whether it stems from third-party vendors, internal mismanagement, or payroll errors—is a huge challenge for production companies, costing the industry millions of dollars in lost time, money, and opportunities every year. According to industry CFO Tim Totora, most film and TV studios operate under the assumption that at least some amount of fraud will go unchecked. And catching financial fraud in productions is generally costly, manual, and time-consuming—and ignoring it can have serious, far-reaching consequences.

Even unproven allegations of financial fraud can invite enough legal and regulatory scrutiny to shut down a production. Productions risk delays, reputational damage, and tighter oversight. Sometimes, a single fraud claim or union grievance is all it takes to trigger a deep audit of a production’s accounting practices, potentially costing millions of dollars in delays and legal fees.

Studios and their associated entities are frequently left on the hook for financial penalties associated with financial fraud, such as fines, legal costs, back pay, and reparations. Again, this can be true even if the “company” was victimized themselves by an internal bad actor, as companies are held liable for negative actions on part of their employees in many situations. 

Let’s look specifically at a recently exposed real-life case of vendor fraud 

In our example, an employee of a production company was helping a vendor to steal money from the production through faked vendor invoices via a series of companies they controlled with their family member. 

Vendor ABC, owned by J. Smith, submitted invoices for a vintage limousine rental. But in fact, Vendor ABC was a shell corporation and didn’t own a vintage limousine. Production Accountant B. Smith—a family member of J. Smith—verified Vendor ABC according to studio protocols, then created purchase orders for associated fake invoices and paid them, receiving those payments into a bank account owned by their own loan-out company, Creative Rentals. 

When the fraud was discovered during an audit, J. Smith claimed Vendor ABC never received the payments for services rendered—since payments went to Creative Rentals—and threatened a lawsuit against the production company for the supposedly lost payments, which resulted in the production company issuing a temporary credit to the vendor. During the course of investigation, the fraud was discovered and funds reclamation attempted via the production company’s bank.  

In essence, the Studio ended up paying for the same financial fraud twice, both in the losses they suffered from the actual act of financial fraud and in credits they felt obligated to pay out to the impacted vendor. They were additionally out of pocket for legal fees and investigatory costs, including those associated with hiring a forensic accountant. 

This is a perfect example of how expensive and time-consuming financial fraud resolutions can be for production companies once funds have been lost.

2. Financial fraud is extensive

Financial fraud is more common than many realize, affecting commercial, television, and film productions alike. Its impact can be severe—leading to significant losses, project delays, and lasting reputational damage. Below are just a few examples demonstrating how fraud can disrupt even the most established organizations.

Commercial & agency

In recent years, several high-profile commercial and agency organizations have experienced damaging fraud cases.

Take one of the world’s largest communications media groups, for instance: They recently grappled with internal financial issues that disrupted project delivery, undermined employee satisfaction, and sparked allegations of payroll mismanagement. As a result, they were forced to overhaul their payroll processes, emphasizing tighter financial oversight. Even so, the reputational fallout proved both difficult and costly to repair, lingering for years after the initial incident.

Film & TV

Similarly to commercial and agency organizations, several high-profile film and television studios have recently faced fraud allegations or investigations and suffered significant repercussions, including:

• A big-budget film from a major media franchise faced reports suggesting mismanagement in various areas, including payroll. (Disputes over budget and production delays such as those that occurred with this film can often lead to contractual issues with crew and talent.) In this case, delays resulting from allegations around mismanagement of funds meant the film lost hundreds of millions of dollars. 
• Another big-budget film from a well-known film and television studio was ultimately canceled as the result of complications arising from investigation of budget management practices, including discussions around payroll practices. While there were no direct allegations of payroll fraud, perception of fraud through recurring payroll issues contributed to the decision to cancel the production.

Establishing a strong fraud prevention framework

What does good fraud prevention hygiene look like?

As the above examples demonstrate, financial fraud can have substantial, far-reaching consequences for production companies and their projects. This underscores the importance of proactive fraud prevention measures.

The four pillars of an effective approach are:

• Increase transparency
• Introduce appropriate friction
• Manage, log, and control user access
• Continuously monitor for suspicious activity—and take swift action when needed 

Let’s dig into each one. 

1. Increase transparency

Knowing exactly who’s working on any given production—both employees and vendors—by verifying their identities and monitoring for suspicious “red flag” changes is crucial to fraud prevention.

When we say “red flag changes,” we’re referring to updates of key personal information like emails, phone numbers, bank accounts, and tax IDs. Fraudsters often manipulate these details to impersonate legitimate workers or vendors—a tactic known as account takeover fraud—by changing personal information to match accounts they control. Being aware of these changes helps lessen the risk of financial fraud for both production companies and their workers. 

Equally important is having easy access to detailed reports—especially for high-risk processes—and employing granular tracking of accounts payable, petty cash, and vendor invoices. This constant level of transparency acts as an ongoing safeguard against fraudulent activity.

2. Introduce appropriate friction as needed

One effective way to curb fraud in production accounting is to build in “appropriate friction”—like requiring a maker/checker approval process during high-risk workflows, such as payroll or vendor payments. Often called a “dual-control” system, maker/checker means one person (the “maker”) initiates a transaction, while another (the “checker”) reviews and approves it. By involving two individuals in each decision, you reduce the likelihood of errors and fraudulent activity.

To enhance security even further, consider using digital payment transfers whenever possible. Digital methods often provide clearer tracking, tighter controls, and less risk than manual or paper-based options.

3. Manage, log, and control user access appropriately

On any production, it’s important that workers do not share login details or use unsecured access channels for proprietary information. Risky behavior like clicking unconfirmed links in emails or text messages should likewise be discouraged. 

It’s also important to ensure that each person’s access is limited to their job function’s key responsibilities and they are not engaging in unauthorized behaviors. 

Finally, it’s important to maintain diligence around worker access termination. When a worker is removed from a project, or once a project is fully wrapped, their access should be terminated to help ensure they can’t retrieve or manipulate data in an unauthorized way. This is especially important for users who might have access to highly sensitive data, such as bank account information. 

When in doubt, limited and granular access is generally better from a fraud prevention perspective. For more on how to manage access, review our comprehensive guide Innovating Compliance for Production.

4. Monitor accounts for suspicious activity & take swift action

When fraud is suspected, speed matters! Understanding user behavior—as well as intercepting and stopping suspicious activities from users before transactions can complete—is essential to prevention.