Unit 1 Flashcards
Introducing Fraud
Definition of Fraud
An act of deception intended for personal gain or to cause loss to another party
What do you advise is the key to prevention and detection of fraud? (after an incident)
Understanding Fraud, it’s nature and how it interacts with business activity
Give reasons why victims of fraud may not report the matter to the authorities?
Individuals - If there is some element of shame – e.g. Embarrassment can prevent disclosure, when the victim feels that their own stupidity has contributed to the loss – Common in Romance Fraud, Lottery scams and advance fee schemes (especially if the loss is of low value.
Corporate – Loss of business confidence and reputational damage far outweigh the loss itself. E.g. Fraudulent loans, Advance Fee fraud, Identify Fraud, Cyber-attacks and Internal Fraud.
According to the Securities and Exchange Commission (SEC), what are the some of the most commonly recorded reasons given by perpetrators for committing corporate Fraud?
(There needs to be some vulnerability that gives rise to opportunity)
To meet external earning expectations of analysts and others
To meet internally set financial targets or make the company look better
To conceal the company’s deteriorating financial condition
To increase the stock price
To bolster the financial position for pending equity or debt financing
To increase management compensation through achievement of bonus targets and through enhanced stock appreciation
To cover up assets misappropriated for personal gain
Describe some of the possible effects of fraud on a business.
Financial Loss – Note the time and effort to investigate the matter when it’s uncovered. Usually involves senior HR Staff and management.
Disruption to business performance – particularly if the matter is disputed or challenged.
External Confidence – Public trust in the organisation, Losing custom, Potentially pay a higher price for credit, refused membership in trade associations or might not be considered for strategic alliance
Company Morale – Embarrassing for employee’s. If Employee’s leave the company, they may carry fraudulent association with the fraudulent company into their next place of employment.
Immediate Financial loss
Loss of revenue
Damaged Reputation
Loss of customer trust
Loss of investor confidence
Increased insurance costs
Extra costs of time/money to investigate and manage each fraud incident
Lowered staff morale
Possible legal costs
Lowered value of stock/services
Insolvency, winding up
Bankruptcy
Failure of suppliers’ businesses
Loss of Employment
Damage to profitable businesses
How and why would a Bank employee be vulnerable to approaches from an organised crime group (OCG)?
Banking staff or those part of the financial sector – access to both sensitive personal data and gateways to fraud enabling processes. Likelihood of coercion/infiltration. Potentially more vulnerable compared to law enforcement staff who are better protected.
