Detecting Fraud in Organizations: Techniques, Tools, and Resources

Chapter One

Understanding Fraud

What Is Fraud, and Why Does It Continue to Happen?

What kind of society isn’t structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.

—Milton Friedman, economist

This chapter introduces you to fraud and helps you to understand why it happens so you can develop a proper foundation on which to learn how to prevent, deter, and detect it. Fraud is first and foremost a people problem, as discussed in the Introduction. Flawed processes may support its continued existence, but processes are only part of the environment in which fraud occurs. Processes do not commit fraud, people do. This chapter does not discuss common or traditional criminological studies but instead focuses on the human element involved in analyzing fraud within an organization so we can determine what fraud is and why it continues to happen in today’s organizations.

This chapter features the following:

Fraud’s many definitions.

The value of informed skepticism.

How to apply critical thinking when reviewing fraud.

Discussions of confusion about responsibility and complexity.

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TO BETTER UNDERSTAND THE MANY definitions of fraud, we begin our journey by learning what fraud looks like and why you need to ask many questions to gain a clear picture of the facts. You need to begin looking through a different set of eyes: not your own, but those ...