Countering Fraud for Competitive Advantage: The Professional Approach to Reducing the Last Great Hidden Cost

2

The Fraud Problem

2.1 INTRODUCTION

In most organisations the fraud problem is under-estimated because senior managers confuse detected levels of fraud with the real level of fraud, and detected levels are often very low or even zero. This chapter will seek to dispel this myth. It will begin by illustrating the fraud iceberg which shows the detected levels of fraud as the small tip above the surface, but with the substantial undetected frauds below the surface. The chapter will then shock the reader with the wide variety of ways fraud can occur in an organisation. The amount of fraud an organisation can expect to suffer from will then be examined. It will show a loss rate of around 5 per cent to be normal, with much higher rates also possible. A brief analysis of recent trends in fraud will be undertaken to highlight the increasing risk. Finally the chapter will consider the impact of fraud and show that the effect upon an organisation is more than financial.

2.2 THE FRAUD PROBLEM

A very common view amongst many senior employees in organisations is that ‘there is no fraud in my patch’. This view is largely driven by the line of thought that if there is no detected fraud, then there can't be any fraud. When the authors discuss their and others' research with senior managers, which suggests levels of fraud around 5 per cent as average, they often just look bemused and cannot comprehend that their organisation could suffer such losses from fraud.

What these and many managers are ...