Fraud

Overview

Fraud is a deliberate deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud itself can be a civil wrong (i.e., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation), a criminal wrong (i.e., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities), or it may cause no loss of money, property or legal right but still be an element of another civil or criminal wrong. The purpose of fraud may be monetary gain or other benefits, such as obtaining a driver's license or qualifying for a mortgage by way of false statements.

Types of Fraud

Fraud can be committed through many methods, including mail, wire, phone, and the internet (computer crime and internet fraud). The international dimensions of the web and ease with which users can hide their location, the difficulty of checking identity and legitimacy online, and the simplicity with which hackers can divert browsers to dishonest sites and steal credit card details have all contributed to the very rapid growth of internet fraud.

Consumer Fraud

Consumer fraud refers to fraud committed by individuals and businesses against consumers. It often involves products or services that are paid for but never delivered. This can include everything from false advertising and deceptive trade practices to identity theft and pyramid schemes.

Corporate Fraud

Corporate fraud involves activities undertaken by an individual or company that are dishonest and illegal. These activities often include insider trading, embezzlement, rigged corporate bidding, and manipulating financial data to deceive investors and stockholders.

Financial Fraud

Financial fraud is a deceptive practice in the financial sector that leads to obtaining money, assets, or other property owned or held by a financial institution, or obtaining money from consumers. This can include securities fraud, insurance fraud, mortgage fraud, and fraud against the government.

Detection and Prevention

Fraud can be detected by examining and comparing documents and seeking out discrepancies, or by noting unusual behavior by individuals. Forensic accounting is a specialty practice area of accounting that describes engagements that result from actual or anticipated disputes or litigation. Forensic accountants often assist in professional negligence claims where they are assessing and commenting on the work of other professionals. Forensic accountants are also engaged in marital and family law of analyzing lifestyle for spousal support purposes, determining income available for child support and equitable distribution.

Fraud prevention involves the steps taken to prevent fraud from occurring in the first place. This can include implementing effective internal controls, conducting regular audits, and promoting an ethical culture within an organization.

Legal Aspects

In the legal context, fraud is a specific offense with certain features. It is treated as a civil crime, with the victim given the right to sue for damages. In some jurisdictions, it is also treated as a criminal offense, with the perpetrator liable for fines and imprisonment. The exact definitions and penalties for fraud vary from one jurisdiction to another.

Impact on Society

The impact of fraud on society can be significant. It undermines trust in institutions and businesses, can lead to financial losses for individuals and companies, and can even destabilize economies. In addition to the direct financial impact, fraud can also have indirect effects, such as increased costs for security measures and insurance, and a general decrease in economic activity due to decreased consumer confidence.