Fraud is a type of criminal activity, defined as:

'Abuse of position, or false representation, or prejudicing someone's rights for personal gain'.
Put simply, fraud is an act of deception intended for personal gain or to cause a loss to
another party.
The general criminal offence of fraud can include:
deception whereby someone knowingly makes false representation
or they fail to disclose information
Or they abuse a position.
Act or course of deception, an intentional concealment, omission, or perversion of truth, to (1) gain
unlawful or unfair advantage, (2) induce another to part with some valuable item or surrender a
legal right, or (3) inflict injury in some manner. Wilful fraud is a criminal offense which calls for
severe penalties, and its prosecution and punishment (like that of a murder) is not bound by the
statute of limitations. However incompetence or negligence in managing a business or even a
reckless waste of firm's assets (by speculating on the stock market, for example) does not normally
constitute a fraud. In such cases, the aggrieved party (creditors or stockholders/shareholders) must
prove that at some point they were intentionally deceived on a material fact. See also statute of
frauds. http://www.businessdictionary.com/definition/fraud.html
4.0 Fraud Triangle theory:
Rationalization. In understanding the psychology of the person committing fraud, it is
important to first understand how the person is
internally justifying the fraud. Cons often con
themselves with thoughts like I am just borrowing
this. I will pay it back later. Or they may take a
moralistic approach as a means for justification.
They may think, I am using this money to help
my family. Some fraudsters may have a
fundamental belief that big insurers are sitting on
piles of money or that the company deserves the
loss, having taken in premiums from the average
little guy. Justification for fraud can take many
forms but is typically an important factor to
pushing the individual into action.
Rationalization is typically an early trait of first-time and occasional thieves. It may not apply
to predatory individuals who have a highly conscious criminal intent to steal from a company
or employer such as in an organized-crime situation. While rationalization is a starting point
for many individuals, the internal need for rationalization often fades when small lies or
thefts are repeated, possibly becoming more frequent or causing more loss. Typically, the con
becomes routine over time, and eventually, the person loses the need for internal justification.
As a result, early detection of fraud is critical in preventing schemes from deteriorating into a
more damaging series of occurrences.
Motivation or Pressure. Motivation or pressure is the second angle in examining what is
driving the individual to commit the act. Just as with rationalization, the perception of a need
or a pressure is the key factor, and it does not matter whether or not the motivation makes
sense to others or is based in reality. Individuals may be facing financial or other personal
problems such as gambling, drugs, alcohol addiction, or extreme medical bills. Pure greed
also can factor into the equation but may be flavored with a sense of injustice. For example,
the perpetrator may feel like the company should have paid me what my car was worth.
Opportunity. Finally, fraudsters must find an opportunity. This is defined as an environment
or temporary circumstance that allows for the fraud to be committed, typically with little
perceived chance of getting caught or penalized. Windows of opportunity exist for
wrongdoing when companies have poor internal controls, weak processes and procedures,
unauthorized or unchecked access to assets by employees, or a lack of management review
and oversight.
Rapid turnover of claims staff and over-assignment of claims may lead to less thorough
reviews of claims submissions. Failure of claims and audit controls may allow false or
inflated claims to slip through the cracks. Also, companies may not actively and aggressively
investigate and prosecute all fraud claims. All of these factors can create opportunity not only
for a one-time fraud but also for a first instance to spiral into a larger scheme.
4.1 Fraud detection
Fraud detection is the identification of actual or potential fraud within an organisation. It
relies upon the implementation of appropriate systems and processes to spot the early
warning signs of fraud. Fraud detection usually includes a combination of the following
techniques:
Proactive (e.g. risk assessments) and reactive (e.g. responding to reports of
fraud).
Manual (e.g. spot audits) and automated (e.g. specialist data-mining software). It
should form part of an organisations overall anti-fraud strategy covering the
prevention, detection and investigation of fraud
The various ways by which occupational fraud is normally discovered.
1. Fraud discovery from tips and hotlines
2. Fraud discovery by accident
3. Fraud discovery by financial statement auditors
4. Fraud discovery by internal auditors
5. Fraud discovery by inspectors general
6. Fraud discovery by security department.
In this case the fraud is discovered by the accident by Mat Jon because he is trying to search
the reason why they get loss every year.
According to the Association of Certified Fraud Examiners (ACFE), the most common way
internal fraud is detected is through a tip from someone. That tipster could be an employee,
an outside vendor, a customer, or an anonymous person. More than 34% of internal frauds are
detected with tips, so its easy to see how important it is for a company to have a way for
people to report suspicious activities.
It is disturbing, however, to note that 25% of all employee fraud schemes are detected by
accident.2 an accidental detection might include a customers complaint about an account
balance followed by an investigation into that balance that reveals manipulation of the
customers account. Maybe an employee who always opens the mail has an unexpected
absence, and someone else collects the mail and finds a notice for unpaid payroll taxes.
Another possibility is a phone call thats routed to the wrong person, and the one answering
the call inadvertently receives information about a fraud.
Further down the list of ways to detect fraud are internal controls, internal audits, and
external audits. Its important to know that audit-related activities arent nearly as effective at
detecting fraud as many may believe. Audits are still an important part of the process,
because they do play a role in preventing some fraud from occurring. Yet they should not be
heavily relied on to detect fraud.
Fraud prevention
Fraud Awareness Training is a critical step in deterring fraud. It
emphasizes the role that all employees have in preventing and
detecting fraud - not just auditors. Often it is tied to a corporate
ethics program, laying the foundation for all aspects of employee
behaviour.
A Corporate Fraud Policy sets out what employees are to do
when fraud is suspected. It defines a consistent course of action
and sets the tone for how the company will deal with fraud. In
particular, it must clearly convey the message that no one has the
authority to commit illegal acts - even to the benefit of the company