3 Common Types of Fraud in Businesses
The term fraud must be familiar to those of you who work in business and finance. Fraud can be a threat that hinders your business operations since the perpetrators will go out of their way to reap fortunes from your business illegally. Several types of fraud that often occur are also carried out by perpetrators to abuse the trust you give.
Fraud can occur in any way, shape, or form. Regardless of the size of the fraud, each type of fraud will have a detrimental impact on the aggrieved parties. Here, you need to get to know the various kinds of fraud so you can determine the steps to prevent it. Read this article further to understand more about fraud in the world of business and finance.
Factors That May Cause Fraud
Factors that may cause fraud can come from the perpetrators themselves or things that are related to the business, regardless of the types of fraud involved.
1. Security System’s Vulnerability
Companies need to improve their security systems regularly. The reason is, a weak security system can be a loophole for fraud perpetrators to commit fraud. Some examples of loopholes that are commonly found in the security system of a company’s technology system are vulnerable software or hardware, easily breachable physical security systems, and so on.
Read also: What is Cyber Security and Its Types of Threats?
2. Opening to do Fraud
Fraud perpetrators tend to launch their actions whenever they find an opportunity to commit fraud. By taking advantage of existing loopholes, they feel that fraud can be done easily and their actions will not be discovered by the company. This vulnerability becomes increasingly exploitable when the perpetrators realize that the security procedures implemented in the company are not resilient enough.
3. Economic Motivation
Companies need to understand that fraud always targets the company’s financial gain. Perpetrators commit fraud attacks because they have particular economic motivations that must be met immediately. Some examples of motivations for various types of fraud that are commonly found are urgent financial needs, get-rich-quick schemes, and the desire to achieve financial goals illegally.
4. Unfavorable Corporate Culture
Certain social conditions such as unfavorable corporate culture and lack of integrity or tolerance for unethical actions can cause fraud perpetrators to feel free to commit fraud. This factor can be further exacerbated by the occurrence of conflicts of interest in a company which can encourage actors to take advantage of this internal conflict. In addition, a lack of understanding of regulations regarding fraud can also be a trigger for various types of fraud.
Read also: Understanding The Importance of Company Risk Management in Building a Business
5. Lack of Understanding Of the Risk
A lack of understanding of regulations regarding fraud can also be a trigger for various types of fraud. Perpetrators consider that acts of fraud have an insignificant impact on the company, although it is clear that regardless of the scale of the crime, fraud can result in significant losses. If left unchecked, companies will not realize their mistake and implement a more stringent security system to prevent fraud.
6. Human Vices
Sometimes acts of fraud occur because they are driven by human vices, such as greed. The greedy nature of the perpetrators makes them feel that the money they have will never be enough to make ends meet. As a result, they will continue to commit fraud to achieve their financial goals illegally.
Types of Fraud
The Association of Certified Fraud Examiners (ACFE), an organization engaged in the field of fraud examination, categorizes fraud in the business world into three categories, such as asset misappropriation, fraudulent statements, and corruption. Explanations for all these types of fraud can be read in the following section.
1. Asset Misappropriation
This type of fraud focuses on the misappropriation of company assets which includes theft of money, goods, or services. Asset misappropriation can be done by employees or external parties who have access to company assets. Some examples of asset misappropriation are theft of cash or equipment, misuse of company credit cards, or unauthorized expense management.
Asset misappropriation can cause significant financial losses for companies. Not only that, customer and investor confidence in the company can also decrease. Therefore, companies must have a strong internal control system and conduct regular audits to prevent fraud.
2. Fraudulent Statement
A fraudulent statement is an act of fraud that is done intentionally to falsify or hide information in financial reports or documents used to make business decisions. These acts can be carried out by individuals or groups seeking to gain illegal benefits or to cover up their poor financial condition.
Some examples of fraudulent statements are falsifying income statements, falsifying balance sheets, and hiding information about a company’s debts or assets. As a result, the company can experience significant financial losses and suffer a decline in its reputation in the business world.
Read also: The Good and Safe Method of Document Storage
Fraud can also be done in the form of corruption or bribery involving more than one party. This type of fraud is classified as large-scale fraud and is difficult to detect because both parties involved enjoy the benefits. As a result, they have no incentive to disclose the true perpetrators of the corruption. Usually, corruption is easily perpetrated in countries with weak law enforcement or companies that have not realized the importance of integrity and good governance.
Examples of corruption are the abuse of interests or authority, bribery, receipt of unauthorized or illegal funds, as well as economic extortion.
Prevent Frauds with Liveness Detection Application
From the explanation, it is clear that preventing fraud from the smallest scale to the larger scale is a must for companies to avoid financial losses. It doesn’t matter what types of fraud target your business, these crimes can result in significant losses for your business. That is the importance of enhancing your business security system with Liveness Detection from AdIns.
This application can prevent all types of fraud that might happen to your business. In addition, the AdIns Liveness Detection application is also equipped with a deep learning-based algorithm to track and recognize your potential customers so that your company can prevent fraud. Customers can also do personal verification in the application easily before accessing the financial data contained therein.
Contact us now to try the demo version of the Liveness Detection application from AdIns for the security of your business from all forms of crime. Prevent various types of fraud that can harm your business only with the best service from AdIns!