Thursday, May 13, 2010

Motivation to Commit Fraud

Motivation for committing fraud consists of four factors, namely greed, opportunity, need, and a lack of ethics. Greed is human nature, and can not be changed by any authorities, only by a person’s ethics. Financial need is everywhere, and is a big motivator for people who succumb to fraud. Their needs can be legitimate, where there is illness or emergency, the need can also be self induced, where drug addicts or gamblers might commit fraud to feed their addictions. The need may also be perceived because a person might only do it to be liked, or to be popular, usually because such a person has an inferiority complex or is socially insecure. Ethics are created by how a person is raised, if a person is disciplined and knows the difference between what is right and wrong, they are less likely to commit fraud, but where there is a lack of ethics, a person would already be used to committing crime, and would not have the self-control to withstand the temptation of committing another crime. Opportunities are created by rapid technology changes, globalization of organizations, and the relaxation of crime barriers.

68% of researchers believe that fraud is increasing, but it’s impossible to know for sure because many fraud cases aren’t detected, or detected too late, and many organizations handle fraud cases privately and never make it public or report it. Fraudsters are becoming more sophisticated as technology improves, and more people will commit fraud because there is a huge need for more money and the economic pressure to survive and become successful is increasing. Also, there is a lack of adequate penalties and law enforcement to persecute fraudsters, combined with the ineffectiveness of the justice system, which could cause an increase in fraud. A lot of fraud goes unreported, leaving the fraudster to commit fraud again and again, because the police are incompetent, the organization’s losses created by the fraudster are unrecoverable, and organizations don’t want to be tied up in criminal procedures that could last years.

Where people have a big need for money, or they have a low morality, or there is unsound control measures in an organization, or perpetrators tell themselves that fraud will only be temporary and they will repay the organization, there will be fraud. The funds rarely get repaid, and fraudsters get used to the easy money, and keep on committing fraud, creating an increase in fraud. Fraud might be committed because a person feels that the organization has done them harm, or because they think that everyone is doing it, and they can do it too. Organizations may commit fraud because of economic pressure and competing with other organizations. They sometimes make rash decisions, publicize false future estimates, distort facts to hold of divestment, and deceive to survive, deceive to succeed, or inflate profits to obtain advantages in the marketplace. A few other factors might lead a person to commit fraud within an organization like low staff morale, ineffective security controls, ineffective code of conduct statements and fraud policies, and appointing employees that weren’t vetted properly.

Another example that has been occurring all over South Africa is building contractors that take the required amount of money from consumers, start building on the premises, but seldom have finished, and they target hundreds of people each year. Electricians and handy men are also common fraudsters that overprice statements, and sometimes don’t do any work at all. All these contractors will keep committing fraud until they are caught.

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