Fraud in the business world is one of the most serious threats, causing damage in many forms. It doesn’t just impact finances, like lost assets, revenue, or investment opportunities, but can also severely damage a company’s reputation. As a result, the trust of customers, investors, and business partners can be lost.
Fraud can be committed by various parties, including internal employees, business partners, or external perpetrators such as online scammers. And it’s getting more complex ranging from financial statement manipulation and company asset misuse to digital fraud like phishing and identity theft.
So, what exactly qualifies as fraud? Why does it happen, and how can it be detected before it causes serious damage? Let’s explore.
Fraud is a deliberate act of deception intended to secure unfair or unlawful gain or to harm another party. It can take many forms—from data manipulation and information misuse to identity theft. In the business and financial context, fraud often involves abuse of authority, document forgery, or illegal transactions that harm companies or customers.
The root causes of fraud can be explained through the fraud triangle a model describing the three key elements that drive a person to commit fraud:
The first element is pressure, which may stem from personal or professional life. This can include financial difficulties, job-related stress, emotional burdens, or external demands.
Fraud won’t occur without an opportunity. Weak internal controls, unrestricted access to assets or information, and a lack of oversight or enforcement create ideal conditions for fraud to take place.
The final factor is rationalization, how an individual justifies their dishonest actions. This might happen if someone feels underappreciated or underpaid and starts thinking they "deserve" a little extra. If the surrounding environment is permissive, they are more likely to normalize this behavior.
Fraud can be categorized based on how and where it occurs. Here are the most frequent types:
This is the most common form of fraud within organizations. It includes theft or misuse of company assets by individuals with access to them—like cash theft, misuse of company credit cards, or falsified financial reports.
According to the Association of Certified Fraud Examiners (ACFE), asset misappropriation accounts for 85% of all reported fraud cases.
It is often difficult to detect without strong oversight, especially since it’s usually committed by internal staff.
This occurs when individuals or organizations provide false or misleading financial information often to attract investment, hide losses, or avoid taxes.
Though it only represents 10% of detected fraud cases (according to Investopedia), the impact is often significant due to the cascading effects on business operations.
Corruption involves the abuse of power for personal gain—examples include bribery, extortion, and conflicts of interest.
According to ACFE, corruption accounts for 35% of fraud cases, with a median loss of $200,000. It’s hard to detect because it often involves collusion.
Unlike the forms above, digital fraud often targets victims with no direct involvement. This includes:
Phishing: Tricking users into giving up sensitive information through fake emails or websites.
Account Takeover: Gaining access to someone’s online account by stealing login credentials.
SIM Swap Fraud: Hijacking a victim’s phone number to access linked accounts and receive OTPs.
Deepfake: Using AI to create convincing fake videos or audio for deception—such as impersonating someone's biometrics.
Fraud detection requires a strategic approach and the right technology. Here’s how:
Regular audits are essential for identifying anomalies in financial reports and operations. External audits add objectivity and can quickly address fraud indicators.
Monitoring data and transaction behaviors helps spot suspicious activities, like unusually large transfers or logins from unfamiliar locations.
According to Crigroup, organizations should assign dedicated personnel—such as HR, management, or leadership—to enforce fraud prevention strategies, supported by staff for execution and reporting.
Even with strong identity verification and authentication, digital criminals look for system weaknesses. Real-time fraud detection becomes critical.
VIDA offers multi-layered fraud detection solutions:
Fraud Scanner: Monitors KYC data, detects suspicious patterns, and blocks fake biometrics.
Deepfake Detector: Identifies face-swapping or morphing attempts before biometric verification is approved.
Deepfake Shield: Uses both active and passive liveness detection to prevent biometric injection attacks.
Fraud is a serious threat that can damage both finances and reputation. Understanding the causes, types, and detection methods is crucial to protecting your business from its consequences.