Fraud in General

What is fraud?

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 to obtain some benefit from the victim. Essentially it is using deceit to steal from someone.

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 that does not have employment relationship with the victim.

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 at the time that it occurs. A theft (like a robbery) is usually known at the time it is committed, or very shortly thereafter. There is no intention to hide a theft. An example of the difference is between an armed robbery at a bank, and embezzling money from the bank.

Can I be the target of a fraud?

If you have an income, an asset or something that someone else wants, you may be targeted by a fraudster. Even if you do not, you still may be the target of identity fraud. Companies or business owners are not the only targets of fraudsters. Many members of the general public are defrauded out of their life savings every year through investment and other types of fraud.

Is occupational fraud or third party fraud more common?

All recent studies show that there is more occupational fraud than third party fraud - about 70% of the total fraud discovered. The suspected reasons are:

there are a lot more employees who have the opportunity to commit frauds against their employers than there are third parties 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 believe can afford the loss, than against an individual who may lose their live savings.
some business expect an amount of loss through theft and employee know that small losses will not be investigated.

Is all fraud meant to remain hidden forever?

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 has a chance to disappear. An example is credit card fraud that is hidden when it is committed, but is discovered when the monthly statement is issued or a payment is not made. Employees committing occupational fraud will generally try to hide the fraud forever as they will want to continue working for 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 to fraud?

The best defenses for business owners against occupational fraud are having good anonymous reporting facility (most occupational fraud is discovered from tips from other employees) and having good internal controls and processes to limit the opportunity of fraud.

What type of frauds do third party fraudsters commit?

Some common third party frauds are:

(1) Investment frauds - Ponzi Schemes and Pyramid Schemes;
(2) Advance Fee frauds - making a payment to someone who does not deliver the goods or services; and
(3) Land Sale frauds - related to the purchaser or the sale of property.

What can people do to limit their exposure?

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, examination of the facts 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: 13.1.2010