Impact of Fraud | Importance of Fraud Prevention

 

There has always been a case in our life when we have been deceived or scammed and not only us as individuals but us as a group and this often damages us. No one likes unfair competitions or disadvantages but some people think otherwise and deceive other people in order to get what they want .These people are called frauds as they benefit from others trust and in the end hurting them mostly in the financial side. Why do these people do this ? Sometimes they do it for the thrill of it for the sheer experience, some other do it because they need to. This comes as a result of financial problems due to many reasons such as divorce,lavish lifestyle,business loses,debts etc. This calls for a solution and the best one is a fraud department. An analyst group who investigates forgery and theft within customers accounts and transactions on behalf of the institution. They track and monitor the financial transactions and the activity that comes through their accounts.

Economic problems

Fraud is costing society several hundred billion a year. Organizations lose 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 lose $9 dollars a day per employee to fraud. 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 postgraduate 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. 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 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 manpower 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 background 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 an extensive educational background. 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.

These employees are more inclined to steal the cash, inventory and fixed assets of the company. The price of gas has increased dramatically, costing employees more to get to work. Some employers, including municipalities and governments, are considering four-day work weeks to survive these costs and assist employees as they grapple with these costs. External Threats The retail industry is experiencing an increase in theft by customers. Customers seem to be most interested in stealing items that are easily converted to cash. Other companies are finding that they are becoming the victim of check fraud at the hands of perpetrators who have obtained their check stock, bank account numbers and routing information. It’s no longer a matter of “if your accounts become compromised, but when they are attacked.” As people become more desperate, their schemes become bolder, regardless of the consequences. Managing Your Risks If your organization hasn’t updated its risk assessment in a few years, now is the time. With the economic downturn and the steep increase in wholesale product prices, your company may find itself vulnerable in areas that have previously gone unnoticed. For example, if you maintain a transportation fleet, your steel parts and fuel are precious and valuable commodities. Those scrap pieces of copper and steel now need to be locked up because of their increased value. Food service operations must pay closer attention to food inventories. Retailers need to increase loss prevention efforts. Safeguards There is little we can do to control the stresses people have, or the justification they use for their actions. However, you can limit their opportunity within your own organization. Digital surveillance cameras have become very common and an effective tool in fighting crime. Access card controls can track employees and identify their whereabouts, and also limit access to specific parts of your buildings. Basic procedures, such as reconciling bank accounts in a timely fashion and employing positive pay controls on your bank accounts, can alert you to illegal activity before it compounds. More organizations are finding that a top-to-bottom internal control review is the best first step in securing themselves from both internal and external threats.Insurance companies are seeing an increase in fraudulent claims.

Banks are finding all types of fraudulent check activity along with unparalleled losses from failed mortgages that were made under false assumptions or by crooked mortgage brokers.

Psychological unrest among victims

The emotional effects fraud can have on a victim are perhaps the most troubling. In comparison to victims of violent crimes, they’re susceptible to many stress-related complications and psychological problems. When fraud evolves into an even more damaging crime such as identity theft, many victims find it difficult to recover from the financial loss. If they were baited into a scam, they may feel as if they not only lost their money, but their sense of security, self-esteem and dignity as well. For some, this may be an ordeal that takes years to resolve.

A fraud victim may feel lonely or embarrassed because of a change in social status. The incident may cause marital problems and prevent someone from providing adequate support for their family. Sadly, the social indifference behind this type of crime can be reflected on the law to some extent. Too often, white collar crimes are thought of as low-priority and do not receive the proper attention. The victim may be received with skepticism and contempt when attempting to report the violation. When members of law enforcement aren’t backing the claim, it becomes very difficult for a victim prove a case to the court. Even with physical evidence, a suspect may find away to elude the system or are given a mere slap on the wrist. Many of them resort to the liquidation of assets or file bankruptcy when ordered to pay restitution.

Your opinion on the topic (supported by evidence, data and studies (1 – 2 pages)

Why Fraud Prevention Really Matters ? Why do we need a Fraud Department in our organization ?

The typical business loses 5 percent of their annual revenue due to internal theft and fraud. Globally, this accounts for approximately $3.7 trillion in losses. Public opinion and employee morale can also suffer as a result of internal theft and fraud.

Many companies operate without systematic fraud prevention programs, or fail to review their programs on a regular basis.

There are very important reasons fraud prevention is worth the effort.

Fraud is common.

Research by the Association of Certified Fraud Examiners (ACFE) found that the “typical organization loses 5% of revenues each year to fraud” with a median loss of $145,000 per case. Frauds are usually not discovered immediately (the ACFE found the median discovery time was 18 months from the beginning of the fraud), so the more a fraud prevention program can improve your chances of discovering the crime, the smaller your losses will be.

Fraud can cause catastrophic losses.

In the networked digital world especially, near catastrophic failures can happen overnight, as Target learned. The consequences of large failures can impose financial, reputational, loyalty, and other brand-related costs that will persist for a very long time. The cost of a fraud prevention program is tiny compared to a major failure.

Cost management matters in a hyper-competitive world.

The organizations that reduce the risk of fraud gain an important competitive advantage over those that don’t.

Fraud prevention increases confidence in your organization.

Your investors, partners, and auditors will all have more confidence in your ability to control your fate if you have a strong fraud prevention program. You probably think a lot about the risks other organizations pose to you; the flip side is that they also think of you as a risk. Your demonstrated efforts to reduce the risks of fraud, both internally and externally, make you a better investment, business partner, insurance risk, and supplier.

Enterprise risk management is a complex process that pays for itself through cost reduction, brand and reputation enhancement, and bottom line success. Controlling fraud risks should be an important part of it.

Bernard Madoff arrested and charged with creating a Ponzi Scheme –

Losses could reach $50 Billion Madoff, 70 of New York, was charged with securities in what federal prosecutors called Ponzi Scheme that could involve losses of more than $50 billion.

India’s Biggest Fraud

Satyam Computer’s founder B. Ramalinga Raju admitted to inflating the cash balance by nearly $1 billion, incurred a liability of $253 million on funds arranged by him personally, and overstated quarterly revenues by 76% and profits by 97%.

The Justice Department accused Siemens of making bribes and trying to falsify its corporate books from 2001 to 2007.

Siemens AG, settled allegations of corruption of public officials with total fines and penalties of approximately € 1 billion.

Parmalat, one of the world’s largest dairy manufacturers, defaults on a €150 million bond

Before investigators could announce that Parmalat overstated its 2003 Earnings by 530%, and understated its liabilities by €1.8 billion, the company declared that €7 billion in liquid assets, believed to exist in a Bank of America account, did not exist at all. By the end of January 2004, Parmalat filed for bankruptcy, with an audit classifying its debt near €14.5 billion

GlaxoSmithKline settles largest healthcare fraud case in U.S. History

GlaxoSmithKline will pay $3 billion and plead guilty to promoting two popular drugs for unapproved uses and to failing to disclose important safety information on a third in the largest healthcare fraud settlement in U.S. history