What is a Fraud? A fraud is when one party deceives or takes unfair advantage of another. A fraud includes any act, omission, or concealment, involving a breach of legal or equitable duty or trust, which results in disadvantage or injury to another. In a court of law it is necessary to prove that a false representation was made as a statement of fact, that was made with the intent to deceive and to induce the other party to act upon it. It must be proven that the person who has been defrauded suffered a injury or damage from the act.
Who commits a fraud and why? It is generally accepted that 20 percent of employees are honest. Another 20 percent are dishonest and don’t mind doing wrong. That means the remaining 60 percent are potentially dishonest, that’s a total of 80 percent of employees which may be dishonest. To understand fraud you first have to determine the contributing factors to why people commit fraud. Some people commit fraud for the sport and thrill of it. There are other recognizable reasons why honest people may commit a breach of trust. Need is the most common reason. A desperate financial need is usually the cause of most frauds. Still some people commit fraud to pay for an elevated life style which other wise they could not afford. Needs arise from a number of locations these include:
Drug or alcohol addiction, Marriage break-ups and/of extravagant love affairs, Gambling Debts, Business losses, Unexpected family crises, Mounting debts, and the desire to live a lifestyle far beyond ones means.
Fraud is costing society several hundred billion a year. Organizations loose close to 6 percent of annual revenue to fraud and abuse of social systems. Fraud costs Canadian organizations $100 billion annually. On the average, organizations loose $9 dollars a day per employee to fraud. On an average of fraudulent cases males received $185,000 and females received $48,000. A study done by the insurance industry indicates the groups most likely to commit fraud.
The most typical person who may commit fraud is a college/university educated white male. Men were responsible for almost four times the fraud as were females. Losses caused by people with post-graduate degrees were five times greater than those caused by high school graduates. Fifty eight percent of fraud is committed by employees, which averages $60,000 per case. Twelve percent of fraud is cause by owners, which on the average costs the insurance companies $1 million per case.
Fraud increases the cost of Canadians everyday living. It affects bank rates, insurance rates, credit card rates, and product costs. All companies that suffer losses factor in the loss to the premium and price the consumer pays.
Fraud is a white collar crime because no one physically gets hurt. The victims of Fraud are usually: Small companies which have large clientele, such as Real estate, financial industry, and education industries. Fifty percent of fraud involves corporations with cash accounts. About ten percent of fraud arises from conflicts of interest, about five percent of fraud cases come from fraudulent statements. Presently the funds obtained by frauds are not recovered. Money obtained from crime is carefully hidden or spent avoiding recovery by the victims and authorities. It is extremely difficult to locate hidden money’s in today’s electronic age. Computers have increased the speed of transactions and thus often not leaving sufficient documentation to track a potential fraud.
There are numerous ways of hiding fraudulent funds. Criminals often conceal illicit payments, launder their money, Hide it in complex computer programs, on/off in book transactions, off shore transactions, and net worth computations.
Fraud is on the rise and the resources to combat it are on the decline, thus making fraud investigators jobs that much more important. Many crimes, particularly those which are non violent crimes are going unattended by the police because they just don’t have the man power to combat it. They are willing to look into fraudulent claims but as of recent they lack the time and resources to give these crimes all the attention they require. The police are now working in co-operation with insurance companies, corporations, and investigators to try to combat this ever increasing crime. Fraud investigators are required to have a police back ground and a real understanding as to what fraud is, how it relates to the criminal code, and how to identify it.
A fraud investigator must investigate allegations of fraud. The investigation may require that the investigator collect evidence, take statements, maintain continuity of evidence, analyze the scam, prepare court briefs, work with the authorities, testify to findings in court, assist in the detection and prevention of fraud and white-collar crime. Fraud investigators must have a extensive educational back ground. A bachelor’s degree in criminology is recommended, a minimum of eight year experience in a related field and actual experience in uncovering, documenting or investigating fraud matters is needed. There is not nearly enough personnel to combat the ever increasing problem of fraud.
In the insurance industry fraud increases every Canadians insurance premium, it is estimated that almost $300 of everyone’s premium is spent towards fraud. At a time in society where conservation of money is extremely important and every cent counts, that $300 dollar cost could be utilized for more important items and not for someone’s fraudulent schemes. Fraud is entrenched in Canada’s social programs: Worker’s compensation, unemployment compensation, welfare, insurance, and ohip. Many other crimes are fueled by the money generated by fraud, these include drug trafficking, gun smuggling, as well as illegal immigrant smuggling. All of these factors force the Canadian cost of living upwards. If we don’t put a stop to fraud, it will ruin Canada’s entire economic structure.
One of the largest contributing factors to fraud is poor economic times, perhaps when the economy and job markets pick up there will be a decline in fraudulent claims. But until that time maybe our best defense against fraud is understanding how it works and creating protection nets to shield us from it. Some very useful ways of protecting ourselves from fraud are:
Consulting a fraud investigator for protection tips,
Be an honest and fair employer who can be respected,
Have a written code of ethics which a organization expects from its employees,
Check employees references for past behavior,
Examine business/bank statements very closely,
Have a anonymous hot line or drop box where people are encouraged turn in dishonest co-workers.
Educating the public and showing them what fraud is doing to business in Canada is very important. If the public realized how large the fraud problem in Canada is they would try to do something to correct the situation.
Punishment for fraud is very minimal. There is almost no deterrence for this crime. If we want to see any improvement in the combat of fraud we must increase the penalty. Presently the rewards of fraud out weigh the risk of being caught. If a person is convicted with fraud they usually receive probation, suspended sentences, or a conditional discharge. This is not right, fraud is a crime against society. The penalty for fraud should be much stiffer than it is. They should pay back every cent to the people they stole from as well as pay back society.
Certified fraud investigators consider occupation fraud to be a serious problem and on the increase, this is a direct result from a number of factors. There is a direct connection between the potential dishonesty of employees between a certain age, sex, level of education, and position in the company. Lack of internal protection against fraud in small companies. Ignorance to the nature and cost of fraud to there company. A false belief that fraud is not occurring in there company. Until society realizes what fraud is doing and decides to protect itself from fraud, the problem will only increase.
Fraud is a growth industry because businesses unwittingly created opportunities for fraud to exist. The price for this ignorance is enormous on society as a whole. To eliminate fraud industries must eliminate all opportunities for fraud to thrive. With penalties the way they presently are, it is easy to see why criminals are committing more fraud. If a bank was robbed and the robber received $14,000 from the robbery, as a penalty they might receive fourteen years.
A person who commits a fraud and realized $14,000, they might receive a penalty of six months. Elimination of fraud will not be a instantaneous event, it will take years to do or perhaps we will never truly get rid of it. If we as society want to survive we must work together as a whole to eliminate fraud to the best of our abilities. Fraud should be considered a very serious offense and the penalties should be more severe. White collar crimes hurt everyone, as well as our economic future.