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Fraud in General

What is fraud?

One of the common definitions is "the means which people will try to get advantages over others using deception, false information or suppression of the truth". The main factors are deception and a dishonest intent.

What is occupational fraud and third party fraud?

Occupational fraud is committed by employees against their employer through their position of employment. Third party fraud is committed by someone outside any employment relationship (the third party) and can be aimed at anyone or any business.

What is the difference between fraud and theft?

A fraud will be hidden, at least at the time of committing the fraud and possibly for some time thereafter. The fraudster will not want the victim to know that they have been a victim of a fraud. A theft is usually known at the time it is committed, or very shortly thereafter. There is no intention to hide a theft.

Am I susceptible to fraud?

If you have an income, an asset or something that someone else wants, you are susceptible to fraud. Companies or business owners are not the only targets of fraudsters. Many average members of the general public are defrauded out of their life savings every year.

Who commits most frauds?

All recent studies show that there is more occupational fraud than third party fraud. The suspected reasons are:

• there are a lot of employees and they have more opportunity to commit frauds against their employers than third parties have to commit frauds against other people;
• the employee is already in a position of trust through their position of employment (to some extent), compared to a third party that must usually win the trust of their victim before they can commit a fraud;
• some people are more willing to commit a fraud against a large business that they know can afford the loss, than against an individual who may lose their live savings.

Is all fraud meant to remain hidden for ever?

No - not all fraud. A fraud will be hidden at the time that it is committed but some are only meant to stay hidden for a short period, usually until the fraudster disappears. (e.g. credit card fraud that is hidden when it is done, but is discovered when the monthly statement is issued. Dishonest employees will try to hide their occupational frauds forever or devise ways to lay blame in another direction, as they will continue working at the employer.

What type of frauds do employees commit?

Some common occupational frauds are:

(1) Payroll frauds - ghost employees and submitting false hours and expense claims;
(2) Asset misappropriation - billing schemes (submitting false invoices), inventory misappropriation and cash skimming; and
(3) Bribery and collusion - outsiders offering bribes to employees to advance their own position.

What can I do to limit my exposure?

The best defenses for business owners against occupational fraud are:

(1) having good anonymous reporting facility (most occupational fraud is discovered from tips from other employees); and
(2) having good internal controls to limit the opportunity of fraud.

The best defenses against third party frauds is a healthy skepticism and recognition that 'if something seems too good to be true, it probably is'. Most frauds against individuals rely upon the greed of the victim overriding common sense and suspicion.

Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.

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Last updated: 9.1.2008