Overview of Frauds in the World

It is a well established axiom that economic crime in general, and fraud in particular, flourishes in environments that provide the right combination of circumstances to the “fraudster.” Generally, the three conditions that must exist before a person commits fraud were mentioned in other articles.

When these factors are present, the environment is conducive to fraud and perhaps to other types of economic crimes as well. Respondents who recalled one or more instances of economic crime were asked to give general information about the perpetrators. From this data an interesting profile of the North American corporate fraudster emerges like in the following:[1]

·         Male 79%

·         Company employee 60%

·         College educated 47%

·         Company manager 47%

·         31 to 40 years old 32%

As seen from above figures, fraud is a significant and growing threat in the whole globe. According to a survey, the following indicators are also proving these:[2]

·         45% of companies worldwide have fallen victim to economic crime in the past two years.

·         The larger the company, the higher the likelihood that it will experience and detect acts of fraud. While companies around the world, on average, reported suffering 8 fraud incidents since 2003, larger companies reported an average of 12 incidents.

·         No industry is safe – whether regulated or unregulated. From 38% to 60% of the companies in each of the sectors reported significant frauds. 2 Types of economic crime

For a fraud to occur, there must be an opportunity and an individual (or group) with an incentive to commit it, and those individuals must also be able to rationalize their own actions – at least to themselves. Most frauds reported involved a lack of adequate internal controls (opportunity), the need to maintain an expensive lifestyle (incentive), and the perpetrator’s lack of awareness that their actions were wrong (self-rationalisation). [3]

When we focus on the whole globe, the following information has been revealed about how many cases have happened after 2003.

From the above figure, we understand that the highest increase is in Africa. The increase in North America and in Europe is also high. However, the rise in Asia and Central / South America is low than the above places.

As the company size increases the number of fraud reports also increase. A company’s size is directly related to the likelihood that it will experience fraud. While only 36% of small companies surveyed reported suffering fraud, 62% of the large companies reported fraudulent activities during the same period.[4]



Size of the Company’s that are Reporting Fraud



 

 

 

After the analyses of the world, we will try to understand the fraud events in North America since it is a very active business place. We have seen that the more the frequency of the audits, the more the number of cases. The following table which has been generated regarding the North American companies proves this theory.



Frequency of the Audits



 Up to now, we have been talking about the fraud events. However, there are some factors that are very important or attractive in the rise of fraud activities. The following table shows the main fraud drivers.[5]



Main Fraud Drivers from US / North America / Globe



When we look at the above table, it shows that the frauds are happening mostly because of the efficient control systems. Lacking awareness of wrong doing and insufficient internal controls bring us to this result. However, these global signs are not as same as the drivers for US and North America continent. Some of the factors are seen to be same but there are some differences from North America and US separately. For US and North America expensive life style appears to be the most important cause for frauds.

After US analyses, we can focus on a developed European country, United Kingdom. The relationship in the UK between opportunity and incentive in perpetrators’ decisions to commit fraud was similar in some respects to this relationship in Western Europe and the rest of the world. There was no single factor which swayed the balance. The need to maintain an expensive lifestyle was acknowledged as playing a role in 39% of the offences reported both in the UK and globally. A lack of internal controls provided opportunity in 42% of the UK cases and 41% globally. And the perpetrator was easily tempted in 54% of the UK cases and 50% globally.[6]

 

Main Fraud Drivers from UK



In contrast to the global results, however, most UK perpetrators did not lack awareness that what they were doing was wrong. In only 36% of the reported cases was this cited as playing a role, in comparison to 52% globally. The greater awareness amongst UK perpetrators that their actions were wrong may reflect a heightened awareness in the UK of the need to combat economic crime.[7]

UK companies may also have an inflated confidence in their control systems. Only 27% thought that their control systems would be a hypothetical factor in economic crime, whereas a weakness in control systems was actually a factor in 42% of the cases of reported fraud. The overwhelming majority of companies responded that they were satisfied with their internal controls (74%).[8]

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[1] Steven Skalak, 2005 Global Economic Crime Study: US and North America, US, PWC, 2005, p.11.

[2] Kai D.Bussman, Global Economic Crime Survey 2005, Germany, Martin Luther University, 2005, p.2

[3] Bussman, Ibid, p. 2.

[4] Bussman, Ibid, p. 6.

[5] Skalak, Ibid, p. 13.

[6] PWC, Global Economic Crime Survey 2005, US, PWC, 2005, p.5

[7] PWC, Ibid, p.5

[8] PWC, Ibid, p.5