Fraud encompasses a range of illegal acts and irregularities whose principal aim is deception. It is specifically used to describe the intentional representation about a material fact believed to be right but it is false. This deceitful practice is knowingly done to deceive and mislead another party in the aim of depriving property or right. Christopher, et. al. (2009) explains fraud as deliberate trickery made in leading persons to believe something that one person knows is wrong and wants others to rely on and in event suffer losses. It is also used to describe the concealing of truth to mislead a party to part with valuables or something of value (Christopher, 2009).
In trying their fraud desired objectives, fraudsters resort to various methods that help them execute their plan. Depending on the objectives targeted, fraud schemes appear in different identities to match their aims. This goes hand in hand with what is happening in the world as in every step of either technology or progress, some people try to take advantage of others. Fraud schemes capitalise on opportunities presented by the absence of control system taking advantage of low chance of being caught.
Fraudsters implement fraud schemes mainly by stealing identities. This is possible through different methods that are less suspicious to the victims of fraud. A superb example occurs when fraudsters use trickery to extract information from unsuspecting public. Here, the victim is approached through a phone call or letter by parties pretending to be police, debt collector or related parties that the victim owes something. The unsuspicious victim goes forward and gives information such as pass codes and other crucial information. Worthington (2009) explains that some fraud schemes go further, create fear in potential victims mind, and call for immediate sharing of information such as bank details. This is when the schemes pretend to be bank representative and make the unsuspicious victim believe how immediate sharing of information would solve any problem existing. In a bid to make the accomplishment of their goals easy, fraudsters employ sophisticated schemes such as Credit & Return where fraudster purchases goods with an accomplice with a fraudulent credit card and then the accomplice returns the goods for cash. Others are using collusive Fraud where they engage staff personnel of a particular organization who will help them to commit fraudulent activities.
Fraud Cycle
Fraud statistics show that fraud cannot be attached to a specific age category. A cyclical pattern is not associated with fraud or age categories or business cycle. Pascal (2006) in his work say when there are many cases of fraud, people usually get more cautious not to fall victim. The authorities come up with new laws to counter the fraud and this makes it difficult for fraudsters to achieve their goals. However, as people hear less of fraud and the fraud awareness goes to a lower level, people become less cautious, they practice less care and fraudsters in turn capitalise on this to defraud them. They do this through innovating sophisticated and less suspicious methods to extract money. The victims of these fraudulent behaviours are not aware of their situations thus behaving as if everything is still in order. There is a time lag between the committing of fraud and its discovery. This shows a return of fraud.
Fraud Triangle
In order for any fraud to occur, three elements have to be present (Christopher, et. al. 2009). These elements include rationalization, pressure, and opportunity. They are explained as follows:-
Pressure
This is what normally causes a person to commit fraud. It come from significant financial problem or need which is non-sharable. When there is immense pressure for someone to bear, he or she may do things that may not have seemed to be possible (Christopher, et. al. 2009). The fraudster believes that for whatever reason, the problem must remain personal, secret as they are much ashamed by it that they cannot share with others
Opportunity
This is the ability to commit a fraud. This normally created by poor management oversight and the presence of weak internal controls. Failure to create adequate procedures in order to detect fraudulent activities usually increase opportunities for fraud to take place, as fraudsters believe their activities will never be detected (Christopher, et. al. 2009). The fraudsters target weak points or individuals perceived to weak and loop hole to conduct the fraudulent activity. He sees nothing on the way to prevent him from laying hands on his target, which could be maybe getting money from a certain organization.
Rationalization
This involves reconciling ones behaviour with the accepted notion of trust and decency. A sense of confidence, which is false, is created and is meant to deceive and bring misrepresentation. The fraudster persuades himself that what he knows as wrong is actually right. To achieve this, he applies mental gymnastics. This rationalization justifies crime leading the fraudster to be convinced that the misdeed was ok and that their acts were indeed a section of general responsibility. Worthington (2009) give examples that some of rationalization include where a person believes he will lose everything if he does not take the money or that in committing the fraud, he will save a close friend, family member or a loved one. He may further try to justify it with job dissatisfaction believing that something is owed to him or that he is unable to understand and that he cares less about the befalling consequences of his actions (Christopher, et. al. 2009).
Financial Pressure
This situation arises where money worries are causing stress. Financial pressure relates to debts an individual may be facing or any concerns about the future. An individual may develop a fear in changes in personal circumstances or at the work place that may affect his income. Under conditions where there is less income or less to use where expenses are high, hard financial time maybe be faced. It is a situation created where there is no balance between income and what goes out. On a personal level, financial pressure is seen to be in existence where an individual worries much about bills and gets others are even overdue. Failure to meet expenses is a crucial characteristic of financial pressure. The little amount at the disposal a person does not give him the power to buy everything he wants. There is also a worry that there cannot be savings where financial stress exists. Normally, for an individual, he will also feel social pressure because he cannot keep up with his neighbours’ lifestyle on top of economic pressure created by creditors and bill collectors (Worthington, 2009).
In a broader economic perspective, financial pressure leads to an interruption of normal financing of financial markets. There is increased uncertainty in the business or organization operation as there is always a constant need for funding and uncertainty where the funding will come from. The organization is not at an easy position when it needs to meet its operations and this might lead it in getting financial assistance from other institutions (Pascal, 2006).
Personal Ethics
This is a system of personal moral principles. They act as moral foundation where an individual builds his life and guide him in making a decision and in different actions (Rosalind, 2004). Personal ethics create a framework of judging what is wrong and what is right as it as they signify core values system that is used for problem solving (Rosalind, 2004). They are usually developed throughout one’s life and they are based on various factors. Relationship with others describes personal ethics more. This is in the form of how an individual presents himself, treats others and how he interacts with the society.
Personal ethics are extremely helpful where an individual faces various dilemmas. This widely covers the issue of decision making where an individual is not only look at short-run and long run but at the same time, the implications of the decision made (Rosalind, 2004). One would consider the kinds of benefits and harms he is likely to meet and based on personal ethics, he will make a rational decision that would save him some costs.
Opportunity to Commit Crime
This is an open door for engaging in what is wrong or breaking the law. This opportunity is usually provided by weaknesses in the internal controls of a certain set up. There is also a high likelihood to be an opportunity to commit crime where there is no supervision and review, where there are no system controls, no separation of duties and where there lacks management approval (Serge, 2008).
References
Christopher J. S., et al (2009), “Detecting and predicting financial statement
fraud:
The effectiveness of the fraud triangle and SAS No. 99”, in Mark
Hirschey, Kose John, Anil K. Makhija (ed.) Corporate Governance and
Firm Performance (Advances in Financial Economics, Volume 13),
Emerald Group Publishing Limited, pp.53-81
Rosalind W., (2004) "Fraud after Roskill: a view from the Serious Fraud
Office", Journal of Financial Crime, 11 (1), pp.10 – 16
Pascal B. (2006). Crisis and fraud New York: W. W Norton & Company.
Serge, M. (2008). Handbook of fraud, scams, and Swindles: Failures of ethics in
organizational. New Jersey: Prentice hall
Worthington, S. (2009) "Debit cards and fraud", International Journal of Bank
Marketing, 27 (5), pp.400 – 402
