The Nature Of Fraud

Moreover if the economy in year 3 is plagued by the  same dollar amount of frauds as in year  2($800 million), the economy will have to grow by almost 13 to reach $222.1 billion. Don`t forget, in addition to a direct debit against year 2`s GDP, year 2`s frauds also indirectly push $9 billion of year 3`s revenue toward recovering year 2`s lost profits.

In addition to the actual reduction in GDP, the amount of fraud and economy suffers has a big impact on how willing investors are to invest in it. When companies commit fraud, investors lose confidence in the integrity of financial  result and stock market valuations and are more hesitant to invest. For example after the revelations or corporate wrongdoing in the United States, foreign investors purchases of U.S. stocks in 2002 dropped to $49.5 billion, the lowest level since 1996`s $12.5 billion. Whether these foreign investors money moved to stocks in other economies that were deemed safer or whether investors decided to stand on the sidelines to see what happened because of the corporate scandals is not clear. What is clear is that the U.S. economy was hurt significantly by the corporate frauds. Because of different cost?/revenue structures the amount of additional revenues a firm or economy must generate to recover fraud losses varies  from firm to firm and from country to country. It is easy to see hat in order to maximize profits of GDP, eliminating fraud should be a key goal of every business and economy. The best way to minimize fraud I to prevent it form occurring. In this book  we will cover fraud prevention as well as fraud detection and investigation .

What Is Fraud ?

There are two principal methods of getting something from others illegally. Either you physical force someone to give you what you want (using a gun, knife, other weapon, or brute force), or you trick  them out of their assets. The first type of theft we call robbery and the second type we call fraud. Robbery is generally more violent and more traumatic than fraud and attracts much more media attention, but losses from fraud for exceed  losses from robbery. Wikipedia defines fraud as follows: In the broadest sense a fraud is a deception made for personal gain. The word deception is key. Fraud always involves deception confidence and trickery.

Although there are many formal definitions of fraud probably the most common is the following:

Fraud is a generic term, and embraces all the multifarious means which human ingenuity can device, which are resorted to by one individual  to gat advantage over another by false representations. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise trickery cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knavery.