Fraud Is: Definition, Factors, Types, and How to Prevent it

Admin BFI
8 February 2023
Fraud Is: Definition, Factors, Types, and How to Prevent it

Have you ever heard the term fraud? Fraud is a dishonorable act that can harm the company or oneself.

This action can be in the form of fraud committed by individuals or groups for the sake of personal gain.

Sobat BFI, let's prevent fraud by understanding the following important points.


1. Definition of Fraud

Literally, fraud is a term that comes from English which means fraud. This action can be in the form of falsification of financial statements that are carried out intentionally to deceive related parties.

Fraud can also be interpreted as an illegal act and an irregularity committed by internal or external parties of the company for personal gain. Apart from being dishonest, fraud is very detrimental to the company in terms of material and immaterial.

While the notion of fraud according to the Association of Certified Fraud Examiners (ACFE), fraud is an unlawful act that is carried out intentionally for a specific purpose, such as manipulation or providing false reports to other parties. These actions can be carried out by people from within or outside the organization to gain personal gain.

2. Factors Supporting the Occurrence of Fraud

The cause of fraud is caused by various factors that we can identify with the term Fraud Triangle Theory (FTT). This theory was created by a criminologist named Donald R. Cressey in 1950. Cressey believes that fraud is very likely to occur because it involves the following 3 things.

2.1. Opportunity

A crime can arise because of an opportunity, as well as fraud. Fraud can occur in a company because of the opportunities that exist. For example, lack of internal control, weak legal policies, or sanctions made, so that certain parties can abuse the position they hold.

2.2. Pressure

In addition to the opportunity, fraud can occur due to a lack of self-control. Such as emotional encouragement, economic pressure, and other things that cause the person to justify his actions and think that this is a way out.

2.3. Rationalization

Rationalization means justification for criminal acts committed by perpetrators of fraud. For example, perpetrators of fraud consider the actions they take to be reasonable and commonplace because the wages they receive are not commensurate with the workload they are responsible for.

In addition to the three factors above, fraud can also occur because of capabilities. This generally happens to employees who have access to financial reports in a company.

3. Types of Fraud

There are 4 types of fraud that you can generally encounter in companies. Such as corruption, misappropriation of company assets, data theft, to embezzlement of money.

fraud adalah

An Illustration of Fraud Activities / Image Source: Freepik/pikisuperstar

3.1. Corruption

The first type of fraud is corruption. This practice of fraud is rife in Indonesia. Existing corruption can be in the form of bribery, extortion, the misuse of information. From the existence of acts of corruption can lead to gratuities or giving gifts for the sake of interest in the long term.

3.2. Deviation of Company Assets

Asset deviation is the next most common case of fraud in a company. This action includes various types of misuse of assets entrusted to fraud perpetrators.

Deviation in this form is also an act of fraud which is quite easy to detect as long as the internal recording and checking process is carried out properly and in accordance with supervisory procedures.

3.3. Data Theft

Data is one of the assets that is quite crucial in the company. This data generally includes the consumer's personal identity and other matters relating to the company's operations.

This action can not only harm the company but also the wider community, especially the personal data of the person concerned.

Data theft that occurs in a company with data centered on a computer is commonly known as computer fraud.

3.4. Embezzlement

As is the case with data theft, in embezzlement of money, the existing actors tend to abuse the trust that the company has given to commit various acts of fraud.

Cases of embezzlement correlate with white-collar crimes such as multi-level marketing (MLM) with the application of Ponzi schemes. As a result, the funds that should have been processed were misused for personal gain. To prevent this, companies can implement KYC.

4. Consequences of Fraud

The existence of acts of fraud can cause various problems which include the 3 important aspects below.

4.1. Losses From the Reputation Side

Fraud results in a loss in terms of reputation where this loss is greater than the loss in terms of finance. As a result, the reputation that has been painstakingly built will be threatened with damage due to loss of trust from consumers and the public.

4.2. Financial Losses

Apart from the reputation side, fraud also harms the company from a financial perspective which affects the profit or profit earned. The reason is, the trust held by the public will simply disappear, making it difficult to achieve sales targets.

4.3. Social Consequences

Social sanctions can arise as a result of fraud. One of them is the use of money obtained by fraudsters (perpetrators of fraud) to commit criminal acts or terrorism. Another sanction is in the form of a loss of public trust in an institution or company.

5. How to Detect the Presence of Fraud

Fraudulent practices are crimes that can be detected in the following 3 ways.

5.1. Perform Internal and External Audits

The audit is a company inspection process related to the presentation of financial statements. By carrying out internal and external audits, the company can detect suspicious things and deviant acts committed by certain individuals.

5.2. Examine Managerial Rankings

Misappropriation of positions and fraud on financial reports generally occur because there is assistance from managerial ranks or those who have direct contact with sensitive data.

Therefore, it is important to carry out routine checks on managerial levels to prevent fraud.

5.3. Examine the Characteristics of Financial Statements

The third way is to examine the characteristics of the financial statements in the company. The check includes income and expense records, liabilities, company assets, and equity.

Later, if there is indeed an act of fraud, the party committing the fraud can be detected more easily. This is because the difference in the amount in the existing reports can be seen clearly.

6. Cara Mencegah Fraud

Fraud adalah tindakan penyelewengan yang dapat dicegah melalui beberapa cara di bawah ini.

6.1. Memberikan Pelatihan dan Sosialisasi Mengenai Anti-Fraud

Anti-fraud training and socialization should be of more concern to the company. That way it will be easier for everyone to understand what fraud is and the sanctions that may apply.

6.2. Monitoring Secara Proaktif

As previously mentioned, fraud exists because of the lax oversight that exists in a company. By monitoring regularly and proactively, fraud is not impossible to prevent.

In this case, employees or people who are directly related to financial reporting activities are given routine performance supervision to ensure integrity is maintained.

6.3. Strict Legal Determination

Regulations that are strictly stipulated can be a prevention of fraud in the company. For example by implementing strict SOPs and not just theoretical ones.

6.4. Providing a Special Investigation Team

In addition to implementing strict policies to prevent fraud, the company should provide reporting channels to accommodate all forms of complaints related to indications of existing fraud.

This reporting channel can be created to serve complaints via email or cell phone. Make sure the investigative team that is part of it can really be trusted and let the reporter send his report anonymously. That way, the evidence obtained can be collected in full and the identity of the complainant is kept safe.

6.5. Perform Internal and External Audits

Conducting internal and external audits to check the correctness of the company's financial statements is an effort to find various potential frauds that may occur by related employees.

Sobat BFI. Thus the discussion of this article about fraud is. All forms of fraud can occur anywhere as long as there is an opportunity. As a good citizen, make sure to always obey the rules for the good of yourself and your loved ones. Hopefully, this information can be useful for all readers.

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