Thursday, December 3, 2020

What is Fraud

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Fraud is the false misrepresentation of fact to gain dishonest advantage or gain unlawful benefit from a person or activities. Fraudulent activities may result in loss of money, property, legal right or any substance of value.

The impact on fraud victims can span across financial loss, sometimes lead to loss of life.

Frauds can be perpetrated in any part of society.  There are classic examples of frauds perpetrated in governmental organizations, multinational organizations, religious bodies, small businesses, and families.

In 2016, the annual cost of fraud in the UK is estimated to be as high as £193bn [UK Fraud Costs Measurement Committee (UKFCMC)].

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In most countries, Fraud is a serious offence and it carries fines and jail time. Countries like the UK, US and Canada have strong fraud acts or regulations, however, people must be vigilant to protect themselves from being victims of fraudulent activities.

There are different types of Fraud;

  • Identity fraud and identity theft
  • Individual fraud
  • Corporate fraud
  • Online fraud / Cybercrime
  • Advance fee fraud

In recent news, the advancement in technology and access to technology has resulted to increase in cybercrime. The anonymity of users online makes cybercrime a hit with criminals.

Cybercrime can include online dating sites, plastic card fraud, bank card fraud, identity fraud etc. Cybercrime activities can be very difficult to trace and enforce because it can be perpetrated from anywhere in the world.

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Examples of Fraud Risks

Charity fraudCharity fraud can be broadly defined as any fraud perpetrated within or against a charitable organisation. This covers both internal and external incidences of fraud including fraud perpetrated by fake or non-existent charities. Many of the internal fraud risks against charities are similar to those risks identified for any public or private sector organisation.

There are also a number of fraud types specific to the charity sector including the impersonation of street collectors, falsification of grant applications, skimming of collection boxes, theft of inventory / donated items and the abuse of charity status to avoid paying tax.

Insurance fraud – The UK insurance industry is the largest in Europe and the third-largest in the world accounting for 11 per cent of total worldwide premium income. The insurance market is divided into two categories: general insurance (i.e. motor, property, accident and health) and long-term insurance (i.e. life and pensions). Long-term insurance accounts for the majority of the insurance market, with total net premiums of £131 billion, compared to £34 billion for the general insurance market.

Insurance fraud is where a claimant knowingly submits false, multiple or exaggerated insurance claims in order to receive insurance payouts to which they are not entitled. It may also involve the deliberate destruction of items or property in order to claim on insurance. Insurance fraud is often opportunistic in its nature. However, in recent years there has been a significant increase in organised insurance fraud, which is often more complex and targeted at specific types of insurance.

Online banking fraud – According to Financial Fraud Action UK, in 2009, online banking fraud losses increased from £53 million in 2008 to £60 million, an increase of 14 per cent. This increase is largely due to criminals using more sophisticated methods to target online banking customers through malware, which targets vulnerabilities in customers‟ PCs, rather than the banks‟ own systems which are more difficult to attack.

There were also more than 51,000 phishing incidents recorded during 2009 – a 16 per cent increase on the amount seen in 2009. More than half of all internet users bank online, with more than 24 million adults accessing at least one online bank account.

Rental fraud – Rental fraud is a type of advanced fee fraud where would-be tenants are deceived into paying an upfront fee to rent a property which turns out to not exist or already be rented out. Reports made to Action Fraud have highlighted the prevalence of rental scams in the last 12 months.




In October 2010, Shelter (a housing and homelessness charity) carried out an online survey looking at the number of people who have been the victim of a scam involving a private tenancy or landlord. The YouGov research estimated that 946,000 people have been the victim of rental scams in the last three years, equating to around 315,000 victims each year.

Bid rigging – Bid rigging occurs when bidders agree among themselves to eliminate competition in the procurement process – thereby denying a fair price.

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Simple ways, for example:

• “Cover pricing” – Submit a non-competitive bid that is too high to be accepted • A competitor agrees not to bid or to withdraw a bid from consideration.

• Submit bids only in certain geographic areas or only to certain public organizations. Although the schemes used by firms to rig bids vary, they all have one thing in common – the bidders agree to eliminate competition so that prices are higher.

Mass marketing fraud – The term „mass marketing fraud‟ is wide-ranging and captures a number of different types of fraud. Whether committed via the internet, through telemarketing, mail or at mass meetings, it has two elements in common. Firstly, the criminals who carry out mass marketing fraud aim to defraud multiple individuals to maximise their criminal revenues.

Secondly, the schemes invariably depend on persuading victims to transfer monies to the criminals in advance, and on the basis that promised goods, services or benefits will follow. Needless to say the promised goods, services or benefits never existed and will never be delivered.

Many fraudsters use generic, well-known fraud templates, simply recycling and updating schemes that have proven successful in the past. The most effective and lucrative scheme variations are often widely replicated, as criminals aim to capitalise on victims‟ delayed recognition of fraudulent solicitations. Because of this, there are many different types of mass marketing fraud.

Examples of mass marketing fraud:

  • “419‟ advanced fee fraud (so-called after the Nigerian criminal code pertaining to fraud). Involves the enticement of victims with promises of immediate and enormous wealth. One of the most common 419 frauds relates to funds transfer schemes, where the fraudster claims to need the victim‟s financial assistance to transfer or embezzle money from a foreign country or company, in exchange for a portion of the stolen funds.
  • Romance fraud (also known as „dating fraud‟) – Targets users of internet dating and social networking sites by feigning romantic intentions towards a victim to secure their trust and affection. The fraudster uses the gained affection and trust to solicit money from the victim, either obtaining money directly from them (for example, asking to send money to pay for travel documents, airline tickets, medication and hospital bills etc).
  • Recovery fraud – Targets former victims of mass marketing frauds. The victim is contacted by the fraudster who poses as a legitimate organisation, claiming that they can apprehend the offender and recover any monies lost by the victim, in exchange for a small fee. If the victim responds, the fraudster will ask for various fees, such as release and administration fees. The fraudsters may also ask the victim to provide details of their bank account so they can pay the money into it. They will then use this information to empty the account.
  • Foreign lottery and sweepstake fraud – These are schemes which target individuals with false promises of money, case prizes or valuable items, provided that the victims first purchase certain products or make advance payments of fictitious fees and taxes. – Premium rate telephone fraud.                                                                                The victim receives a letter, mobile text message or automated telephone message informing them that they have won a major prize; urging them to telephone a premium rate number to find out what they can claim. Calls to the number are charged at a premium rate and victims are encouraged to stay on the line for several minutes. When the prize is claimed, it turns out to not exist or to be a cheap „give away‟ item.             A recent variation of this fraud involves calling cards being left saying that delivery or a parcel was attempted, asking the victim to call a number in order to re-arrange delivery of the parcel. In reality, the victim is calling a premium rate number in order to claim a parcel which turns out to not exist.
  • High-risk investment fraud – Victims are contacted and offered the opportunity to invest money into things like shares, real estate, fine wine, gemstones, coins, ventures, art or other items of „rare‟ high value with the promise that these items will significantly increase in value. What is offered either does not exist or is significantly over-priced, high risk and difficult to sell on.
  • Career opportunity – This involves victims being offered the opportunity to enhance their career by signing up with an „agency‟ or „company‟ (for example, a publishing or modelling agency). The victim is duped into paying a fee or fees upfront, after which very little if any, assistance is given by the „agency‟ or „company‟.
  • Emergency assistance schemes – Where fraudsters (sometimes posing as a family member or close friend) contacts the victim with requests for urgent financial assistance for example by claiming that a family member was arrested overseas and requires bail money or that a friend has had an accident on holiday and needs funds for emergency medical expenses.
  • Pyramid schemes (sometimes known as chain letter scams) – Advertised through mailings, newspapers, the internet or via word of mouth. The victim is asked to pay to become a member of a scheme which promises large commission earnings if they recruit others to the scheme. If enough new members join, the pyramid grows, possibly enabling some members to make money. Inevitably, however, the money runs out and those at the bottom of the pyramid scheme lose their investment. – Psychic and clairvoyant schemes. Victims are contacted by a so-called „psychic‟ or „clairvoyant‟ with offers to make predictions of events that will change the victims‟ life, provided that the victims pay in advance.

The Cost of Fraud

The Financial Cost of Fraud Report, produced by accountants Crowe and the Centre for Counter Fraud Studies at the University of Portsmouth, reviewed 690 loss measurement exercises undertaken over the period from 1997 to 2018.

The global average loss rate for the period of the research (6.05%), when taken as a proportion of the global GDP for 2018 equates to £3.89 trillion, a sum more than 80% greater than the UK’s entire GDP.

Even reducing such losses by 40%, which individual organisations have achieved, would free up more than £1.55 trillion – a sum greater than the GDP of 174 countries, including Spain, Australia and Mexico.

Since the start of the global recession in 2008, there has been an increase in average losses from 4.57% to 7.15% for the period 2017–2018, marking a 56.5% rise.

The Reference Shelf

CIPFA – Here

Accountancy daily – Here




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