A Financial Investigation Company

What is Fraud?

In law, fraud is 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 and/or recover monetary compensation), a criminal wrong (i.e. a fraud perpetrator may be prosecuted and imprisoned by government 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 qualifying for a mortgage or a government procurement bid by way of false statements. 

Why does fraud occur?

The Fraud triangle is a framework designed to explain the reasoning behind a worker’s decision to commit workplace fraud. The three stages, categorized by the effect on the individual, can be summarized as pressure, opportunity and rationalization.

Broken down, they are:

Step 1 – the pressure on the individual – is the motivation behind the crime and can be either personal financial pressure, such as debt problems, or workplace debt problems, such as a shortfall in revenue. The pressure is seen by the individual as unsolvable by orthodox, legal, sanctioned routes and not shareable with others who may be able to offer assistance. A common example of a perceived unshared financial problem is gambling debt. Maintenance of a lifestyle is another common example.

Step 2 – the opportunity to commit fraud – is the means by which the individual will defraud the organization. In this stage the worker sees a clear course of action by which they can abuse their position to solve the perceived unshared financial problem in a way that – again, perceived by them – is unlikely to be discovered. In many cases the ability to solve the problem in secret is key to the perception of a viable opportunity.

Step 3 – the ability rationalizes the crime – is the final stage in the fraud triangle. This is a cognitive stage and requires the fraudster to be able to justify the crime in a way that is acceptable to his or her internal moral compass. Most fraudsters are first-time criminals and do not see themselves as criminals, but rather a victim of circumstance. Rationalizations are often based on external factors, such as a need to take care of a family, or a dishonest employer which is seen to minimize or mitigate the harm done by the crime.