Why do some people commit fraud?

Economic crime and fraud are a threat to individuals, private enterprises, public enterprises and organisations. Why do some people commit fraud?

Many company managers expect the auditor to reveal fraud and therefore do nothing but wait for the auditor's possible findings. In reality, the ordinary audit of the company's annual accounts and annual accounts is not designed so that the auditor can be expected to discover fraud. Additional measures must therefore be taken to protect the business against fraud. Knowledge of the reasons why certain people commit fraud can help us to prevent fraud.

Below we explain the reasons why some people commit fraud.

motive

Firstly, it is easy to imagine that people can have a motive to obtain a profit to which they are not entitled. Some people live beyond their means, have major financial difficulties, are addicted to gambling, drug addicts or have come into a life situation that entails sudden changes and a need for funds beyond what the person receives in salary and other benefits.

Surveys show that around 40% of the cases where fraud has been revealed are due to the perpetrator living beyond his means. In addition, financial difficulties can explain the reason for around 30% of insolvency cases.

The third most prominent indicator is that the perpetrator had exceptionally good contact with some of the company's customers or suppliers. These were involved in the wrongdoings that were committed.

In order to defend to themselves that they have committed fraud, it is not unusual for the perpetrator to claim that an extraordinary work effort has been delivered without compensation. The perpetrator may believe that it is a defense that the person in question takes care of himself and has his private costs covered or obtains other irregular benefits from the workplace.

Opportunities to commit fraud

Secondly, it is assumed that the perpetrator has opportunities to commit fraud. In most workplaces, there are a number of opportunities to gain access to funds or gain unjustified benefits that are kept hidden from the employer. Theft of items from the workplace is just one example of this.

Employees who are responsible for purchasing may see an opportunity to get the contractor who performs work for the employer to also deliver goods or services to the person concerned's private cabin or residence. Another obvious possibility could be to get the contractor to carry out small repairs on your own home. The costs of this are hidden by the contractor entering the costs in the invoice sent to the employer.

Another way to commit fraud is to send claims to the employer that do not contain real expenses that the employer must pay. There may be exaggerated or completely fictitious outlays and costs that are unjustly charged to the employer. The result is that the employee saves private expenses that the employer is led to pay.

The risk of discovery

Thirdly, the risk of detection is important for whether the perpetrator commits fraud. It is in particular the perpetrator's own experience or assumption of the risk of being discovered that determines whether the person in question takes the chance of committing fraud.

A high perceived risk of being discovered is likely to cause the person to refrain from carrying out the plan to do something that could give the person an unjustified advantage. If it is easy to steal objects from the workplace, without the employer discovering it, there is therefore also a greater chance that some employees will take the chance to do just that.

Social acceptance in the workplace

Fourthly, it is probably important whether there is social acceptance of breaking rules in the workplace. Let's take an example. If there is a culture where employees in a sales department agree with each other to give themselves discounts that were intended for customers, it may be easier to accept that. Conversely, an employee who is alone in committing such actions will refuse because the person concerned is afraid of what others will say and the consequences of breaking the rules. Another example could be that you enter into an agreement with a colleague that you both exaggerate expenditure on the travel bill that is delivered to the employer. When both agree on it, it may be perceived as more acceptable.

If several employees at a workplace accept breaking the rules, it can be difficult for other employees to say no or report the irregular conditions.

Conversely, a workplace where employees do not accept breaking the rules will make it difficult for employees to commit fraud. This applies even if there is a motive, opportunities and a low risk of detection. Therefore, a strong organizational culture can stop employees from committing actions because they perceive it as unacceptable.

Management's attitude and own behavior can be decisive. If employees know the consequences of committing fraud and know that management investigates suspicions and reports any case of fraud, it can stop someone from committing fraud.

What actions are committed?

The vast majority of cases of fraud and financial crime relate to assets that are the employer's property. There may be theft of objects from the workplace, embezzlement, fraud in connection with travel bills or other costs that are wrongly charged to the employer.

Other examples are theft of inventions, trade secrets or other intellectual property rights belonging to the employer.

Close to 40% of misdemeanors relate to corruption. There may be situations where the perpetrator accepts a bribe in connection with the employment relationship. Most of the cases concerning corruption are committed by people who have the authority to carry out procurement or who sit in leading positions and can thus instruct others in the workplace.