Fraud 101

I will try to add more ideas in the field of good governance so the community will be more aware of how certain events happen (for this instance - fraud) when large inflows and outflows of money is involved in trying to deliver a certain objective or service. We should safeguard EA and the community moving forward with knowledge so that all of us can detect events similar to what happened with SBF and FTX.

What is Fraud?

Fraud is not complex in its concept though the nature of each fraud varies - due to degree of connivance or methodology used to conceal information.

Fraud is defined as in CFE Website:

“Fraud” is any activity that relies on deception in order to achieve a gain. Fraud becomes a crime when it is a “knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment” (Black’s Law Dictionary). In other words, if you lie in order to deprive a person or organization of their money or property, you’re committing fraud. 

The Fraud Triangle (pre-requisites of fraud as defined in CFE website)

The Fraud Triangle hypothesizes that if all three components are present — unshareable financial need, perceived opportunity and rationalization — a person is highly likely to pursue fraudulent activities.

Categories of Fraud as defined in CFE website:

Against individuals 

This is when a single person is targeted by a fraudster — including identity theft, phishing scams and “advance-fee” schemes. Perhaps one of the most noteworthy and devastating individual frauds is the Ponzi scheme. 

Internal organizational fraud

Sometimes called “occupational fraud,” this is when an employee, manager or executive of an organization deceives the organization itself. Think embezzlement, cheating on taxes, and lying to investors and shareholders. 

External organizational fraud

This includes fraud committed against an organization from the outside, such as vendors who lie about the work they did, demand bribes from employees and rig costs. But customers sometimes defraud organizations, such as when they submit bad checks or try to return knock-off or stolen products. And increasingly, technology threatens organizations with theft of intellectual property or customer information. 

Again, it requires more people thinking correctly to build the future. Taking a few seconds to read a concept related to how our human nature is liked hijacked by rationalizing a certain financial pressure, how one acts on such is a useful tool overall and I believe a great benefit for the community.