Baku Business University

Faculty: Economics and Management

Specialty: Translator
Subject: Writing skills of the translator

ABSTRACT

Course: 1
Group: T / 21B
Teacher: Chinara Shahbazli
Student: Hasanli Narmin
 The Consequences of fraud

PLAN:

1. What Is Fraud?

2. Fraud Crime: Costs, Perpetrators, and Victims

3. Emotional Consequences of Fraud

4. Potential types of business fraud

What Is Fraud?

Fraud is an intentionally deceptive action designed to provide the

perpetrator with an unlawful gain or to deny a right to a victim.
Types of fraud include tax fraud, credit card fraud, wire fraud,
securities fraud, and bankruptcy fraud. Fraudulent activity can be
carried out by one individual, multiple individuals or a business
firm as a whole.
Fraud Explained
Fraud involves the false representation of facts, whether by
intentionally withholding important information or providing false
statements to another party for the specific purpose of gaining
something that may not have been provided without the deception.
Often, the perpetrator of fraud is aware of information that the
intended victim is not, allowing the perpetrator to deceive the
victim. At heart, the individual or company committing fraud is
taking advantage of information asymmetry; specifically, that the
resource cost of reviewing and verifying that information can be
significant enough to create a disincentive to fully invest in fraud
prevention.

Both states and the federal government have laws that criminalize
fraud, though fraudulent actions may not always result in a
criminal trial. Government prosecutors often have substantial
discretion in determining whether a case should go to trial and may
pursue a settlement instead if this will result in a speedier and less
costly resolution. If a fraud case goes to trial, the perpetrator may
be convicted and sent to jail.
Legal Considerations
While the government may decide that a case of fraud can be
settled outside of criminal proceedings, non-governmental parties
that claim injury may pursue a civil case. The victims of fraud may
sue the perpetrator to have funds recovered, or, in a case where no
monetary loss occurred, may sue to reestablish the victim’s rights.
Proving that fraud has taken place requires the perpetrator to have
committed specific acts. First, the perpetrator has to provide a false
statement as a material fact. Second, the perpetrator had to have
known that the statement was untrue. Third, the perpetrator had to
have intended to deceive the victim. Fourth, the victim has to
demonstrate that it relied on the false statement. And fifth, the
victim had to have suffered damages as a result of acting on the
intentionally false statement.

Fraud Crime: Costs, Perpetrators, and Victims

Fraud is an insidious crime. Commonly defined, fraud is an act in
which attempts are made to deceive with promises of goods,
services, or financial benefits that do not exist, were never
intended to be provided, or were misrepresented. And each year,
tens of millions of people fall prey to fraudulent schemes and
practices. It is estimated that as little as 15 percent of all fraud
crimes are reported to law enforcement authorities.

The financial cost of fraud crime, to both its victims and the
American public, is astronomical. Losses for telemarketing and
direct personal marketing fraud schemes alone are estimated to be
more than $40 billion annually. Check fraud accounts for
additional yearly losses of at least $815 million, more than 12
times the $65 million taken in bank robberies annually--and these
represent only two examples of common fraud schemes.
A.Emotional Consequences of Fraud
The emotional ramifications of fraud crime can be even more
costly. Fraud victims often suffer
Self-blame,
Shame,
Guilt,
Societal condemnation and indifference (the attitude that victims
of fraud deserve what they get as a result of their own greed and
stupidity), and
Isolation (when victims suffer their losses in silence rather than
risking alienation and blame from family members, friends, and
colleagues).
B.Who Are the Victims of Fraud?

Not all fraud victims are greedy, risk-taking, self-deceptive

individuals looking to make a quick dollar. Nor are all fraud
victims naive, uneducated, or elderly. Victims of fraud come from
a variety of racial, age, gender, religious, socioeconomic, and
educational backgrounds. And smart perpetrators prey on those
differences. For example fraudulent telemarketers often target the
elderly as potential victims, not because they are greedy, but
because they are more likely to
Have money, property, savings, and investments;
Be home to receive phone solicitations; and
Remain on the phone longer to hear fraudulent sales pitches (due
to loneliness).
Younger, educated adults may be targeted because of a

 Lack of maturity and experience that would help them

recognize fraudulent pitches,
 Desire to increase their standard of living quickly, and
 Lack of information about financial investments or purchases.
Other victims are targeted because of certain personality or
character traits that may increase their risk for fraud victimization.
These include

Compassion,
Respect for authority figures, and
Unsuspicious natures.
C.Who Are the Perpetrators of Fraud?

Fraud perpetrators vary as much as the victims they target. Like

their victims, fraud perpetrators come from every educational,
geographical, racial, religious, gender, and socioeconomic
background.

Contrary to popular belief, most fraud perpetrators are not slinky,

shady characters who perpetrate their crimes under the cover of
night. Today's fraud perpetrators are often trained professionals
who are good at what they do--stealing money and assets from
people. Fraud criminals often do their homework by

Joining professional organizations,

Participating in community events (to legitimize their schemes and
develop trust with potential victims),
Keeping abreast of current events (to appear knowledgeable about
cutting-edge technologies, legitimate financial investments, and
business practices), and
Assuming an "affinity" with their victims (emphasizing their
common age, culture, education, race, or financial or social status).

Their weapon of choice is not a gun or a knife, but slick

publications, marketing materials, prospectuses, computer and
communications technology, and well-rehearsed sales pitches.
Many fraud perpetrators use their community and professional
credibility and respectability to con, swindle, and deceive family
members, friends, business colleagues, and other members of the
community with whom they have formed a relationship.
Potential types of business fraud
Before we dive into how fraud can have a huge impact on a
business, it’s important you understand the number of ways
business fraud can occur. Here’s a short list to give you a deeper
insight:

External fraud: Companies can be the victim of external sources of

fraud through spam emails, cyber criminals and the like
Insurance fraud: A company might file false or exaggerated claims
for an insurable event, e.g. a fire in the business building
Tax fraud: Deceptive reporting of income to reduce tax liabilities
Billing fraud: Similar to above, but is based on the false reporting
of expenses in the hope of financial gain
Accounting fraud: False reporting of income, profits and expenses
to deceive investors
Identity fraud: Assuming a business's identity to utilise their
financial resources illegally
The effects of fraud allegations on your business
The above types of fraud can occur both at an external level and an
internal level. Whether it's an external source manipulating the
business or someone within the business manipulating the books,
there are a number of potential outlets.

Either way, the effects on a business can be devastating. Here’s

how:

1. Loss of reputation and brand image

For starters, loss of business reputation is inevitable after a
fraudulent act. This is the case if the fraud occurred both internally
and externally.

For example, a business being victim to fraudulent activity can

make customers and clients lose trust in the integrity of the
business’ systems. On the other side of the coin, an internal
fraudulent crime can lead customers and clients to lost trust in the
company’s workers.
Overall, people are much less likely to want to deal with a
company who has fraud in their history, thus decreasing reputation
in the sector.

2. Loss of repeat customers

Fraud can be a traumatic experience for clients, and can have
irreversible impacts on the client’s mental health and their life.
Because of this, even after the whole situation blows over, it’s
likely that those involved with your business will be far less
confident in dealing with you.

For businesses, they may feel worried about being associated with
you, and the effect this might have on their own brand image.
What’s more, for individuals, they might be concerned about the
impact continued dealings with you will have on their careers,
family and mental health.

As a result, it’s likely that they’ll find a new business to deal with
for the services you offered them.

3. Reduction in new customers

Similarly, it’s unlikely that new customers will feel safe to seek
your services if you’ve been involved in a fraud allegation. They
might be concerned about being associated with you, as well as
having concerns over whether their information is safe with you.
This is likely to limit the influx of new customers in future.
4. Huge financial impact
The lack of repeat and new customers after a fraud allegation will
have a huge financial impact on your business. However, that’s not
the only way this can have an impact.

In fact, international estimates show that public bodies can lose

between 0.5 and 5% of their budget to losses from fraud. But how?

For starters, the legal fees incurred to support your business after a
fraud allegation can be huge. This, of course, depends on the
nature of the fraudulent activity, and whether it was external or
internal. It also depends on how many people, including
employees, clients and customers were involved.

On top of this, a business will have to put strict measures in place

to avoid this happening again, whether that’s hiring new talent to
deal with accounts and systems properly, or putting new processes
and checks in place to avoid this.

Some fraudulent activity, especially external cases, can involve

monetary fines from the ICO, or even ransoms having to be paid.
Ultimately, the financial loses are untold and affect businesses in a
variety of different ways.

5. Company morale
Morale within the company can be affected in a variety of ways.
For example, employees may feel guilty for not detecting the
fraudulent activity, affecting their confidence in their abilities.
This can have a knock-on impact on employee productivity.

What’s more, if the fraud came from high up in the company,

employees will likely feel a lack of trust towards their superiors.
Ultimately, it’s unlikely to be positive for any of the employees
currently working there.

6. Loss of employees
You might even find that the impact is enough for you to lose
employees. For example, if employees are concerned about their
own reputation in dealing with your business, they may feel that
leaving is the best course for their career.

Alternatively, they might feel that they no longer have trust or

faith in the company and the company message. As a result,
employees may decide to seek work elsewhere, further increasing
the financial strain and resourcing on the company.

7. Digital affects
When fraud – especially that from an external source – is detected,
this can have a knock-on effect on the business’s digital activities.
Not only can data be lost or compromised, new systems and fail-
safes will need to be put in place to avoid it happening again.
There will also be a lot required to potentially recover lost
information, and rebuild the systems to fix the problem. Lengthy
audits and staff training will be required to get this right.

The effects of serious fraud on your company are numerous

As we’ve made clear in this article, allegations of fraud within
your company are likely to have a huge, untold impact on every
aspect of the business. From finances, to brand image and
employee morale, there’s a myriad of ways things can spiral out of
control.

As such, avoiding fraudulent actions at all costs is paramount.

Having the correct processes, training and systems in place to
avoid external fraud is paramount. What’s more, keeping an eye
on accounts and employee activity to avoid internal fraud are a
good place to start.
 References

1. https://www.delta-net.com/compliance/fraud-awareness/
faqs/what-are-the-consequences-of-fraud
2. JAMES
CHEN-https://www.investopedia.com/terms/f/fraud.asp
3. PriceWaterhouseCoopers (February 2014). Fighting fraud in
the public sector III.
https://www.pwc.com.au/pdf/fightingfraud-feb151.pd
4. Dobel, JP. (2018). Public Leadership Ethics: A Management
Approach. Routledge
5. UK Cabinet office (2018). CrossGovernment Fraud
Landscape 2018.