Fraud Accounts For More Losses Than Many People Realise

It is possible to estimate the level of fraud that occurs around the world

. Many bodies attempt to do this to raise awareness over the problem. However, there is so much more fraud around than is commonly recognised and given that it is also a secret crime, even the most optimistic estimates are likely to be on the low side. The only bright side to the problem is the fact that the effect of fraud on the world's economy is likely to be less than most people think.

When a forensic accountant is asked to investigate a corporate fraud he will most likely attempt to quantify how much money has been lost. There will also be other tasks such as plugging the leak, tracing and recovering the losses and assisting with dealing with the culprits, either through the civil courts or if the law enforcement agencies get involved. However, it is likely that a value can be placed on the fraud. This represents cash a business has lost.

The money that has been lost to the business is not the full amount of the fraud in financial terms. A number of other issues must be considered.

After the money is stolen, some or all of it may be recovered. This will reduce the net value of losses to the company and it could possibly be said that it reduces the size of the fraud. Alternatively. the losses to fraud may well leave the company strapped for cash. This could have a number of effects ranging from loss of opportunities in the market place leading to lost profits, to leaving the company unable to trade at all and going under. In this case the economic cost of the fraud is much more than the amount of money that was stolen.

This can be taken further as the fraud's value may not be just the amount stolen from the company. If the law enforcers investigate, there will be a cost to the taxpaying public. If the culprits are caught and prosecuted the cost of a trial will ensue. Public money pays for a massive anti-fraud industry that, at a huge cost, is supposed to deal with the problem. But this cost is part of the economical picture, and an investigator will put his earnings into family and home. His savings will be lent by the banks to industry and the cycle of money will continue.

It can be seen that it is not easy to quantify fraud. The difficulty of defining "what is a fraud" can be added to this. A straight forward corporate loss such as the example noted is obviously a fraud. But then there are the secret financial losses that are never discovered? What about sharp practice? What about over zealous selling? The list is endless and it all crosses the grey area between honest activity and fraud.

by: Mark Jenner

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