Why a Bad Economy Leads to Accounting Fraud

Why a Bad Economy Leads to Accounting Fraud

Accounting fraud seems to escalate in a bad economy. There are many reasons for this, and some of them may surprise you. When the economy is bad, people become desperate to maintain their lifestyles, or even to just survive. Under these conditions, some people turn to fraud.

In a bad economy people do not make as much money, there are not enough jobs to go around, and the stress of trying to make ends meet can be overwhelming. Some people turn to fraud as a quick fix for their financial problems. There are many types of fraud, from the employee of a large corporation taking advantage of access to secure documents to investment fraud.

But why would people take such drastic measures, considering the severity of the consequences? If caught, criminals convicted of fraud can be subject to large fines and jail time. In a bad economy, these measures do not seem as drastic as the thought of losing one's home or having to alter one's lifestyle. Living beyond one's means is a common financial ailment in America, one that quickly becomes severe with the economy goes bad.

Part of living beyond one's means entails accruing a significant amount of debt. Things have to be paid for somehow, and the credit card has long been a best friend of those who wish to buy more than they can afford. Excessive debt can ruin a person's lifestyle and may make someone more likely to commit fraud, especially in a bad economy.

Another drain on one's financial resources that may lead to fraud is child support. Child support, and alimony, are often both taken directly out of one's paycheck. This causes a significant decrease in the amount of money one is making, and can lead to desperate measures, such accounting fraud, in a bad economy.

Obviously not everyone with these hard to maintain lifestyles resorts to fraud, but the risk does increase in proportion to the amount of financial stress. Other contributing factors are personal, such as addiction, legal issues, or a criminal history. These circumstances all require an excess of money, and heighten the risk of a person committing accounting fraud in a bad economy.

While a bad economy does not guarantee that people will commit accounting fraud, the odds of it happening get higher as the economy gets worse. When people feel there is no financial way they can survive, many will resort to criminal behavior.

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