Fraud is a criminal deception that aims to profit at the expense of the victim. According to PwC’s 2022 Global Economic Crime and Fraud Survey, 51% of the organisations that responded reported having experienced fraud in the past two years – that’s the highest level in their 20 years of research!
There’s no denying that fraud’s a growing problem worldwide, with forensic accountants and internal auditors continuing to uncover fraudsters’ ever-developing techniques to exploit systems and processes. Not great for the victims, but better news for forensics specialists, internal auditors and those entering this increasingly sought after field.
Of course, there are many ways to commit fraud, so various areas for forensic accountants and internal auditors to pursue. Here, we’ll explore some of the most common types of fraud being brought to light by talented professionals, with real-life examples from across the globe.
(1) Ponzi schemes
A Ponzi scheme is a type of investment fraud where an individual uses funds from new investors to pay returns to earlier investors. The scheme generally promises high returns with little risk, but the returns come from other investors' money, and the scheme eventually collapses.
The most famous Ponzi scheme was carried out by Bernie Madoff, now of Netflix fame, who defrauded investors of billions of dollars. Forensic accountant Harry Markopolos rose to fame as the whistle-blower who alerted authorities to the scheme. As a result, Madoff was convicted in 2009, and the scheme's collapse resulted in numerous lawsuits and bankruptcies.
(2) Accounting fraud
Accounting fraud is a type of financial fraud where individuals manipulate financial records to mislead investors, auditors, or regulators. Companies, executives, and accountants are responsible for reporting their financial performance, and fraudulent practices can lead to significant financial losses for investors.
One of the most notable cases of accounting fraud was at WorldCom, the US telecommunications giant. WorldCom inflated its earnings by billions of dollars, resulting in criminal and civil charges against executives and the company.
(3) Money laundering
Money laundering is the process of hiding the proceeds of criminal activity by disguising illegal funds as legitimate. Money launderers create a series of transactions to obscure the source of funds, making it hard for law enforcement officials to trace the money's origin.
Famous cases of money laundering include the Bank of New York's laundering of $7 billion in funds from Russia in the 1990s, and the HSBC money laundering scandal, which resulted in a $1.9 billion fine in 2012.
(4) Bribery and corruption
Bribery and corruption occur when individuals or organisations give or receive something of value, such as money or gifts, in exchange for preferential treatment or favours. This type of fraud can be extremely difficult to detect, and it can have a significant impact on society and the economy.
One of the most famous cases of bribery and corruption was the Siemens scandal, which involved bribes paid to officials and involves several countries worldwide.
(5) Cyber fraud
Cyber fraud is a type of fraud that occurs through electronic communication, such as email or social media. Cybercriminals use scams, malware, phishing, and other techniques to steal personal information, financial data or infect computers with malicious software.
In March 2021, Microsoft discovered and prevented an attack that would have been one of the largest-scale cyber-attacks in history, potentially affecting tens of thousands of companies.
(6) Securities fraud
Securities fraud refers to the manipulation of the stock market or securities to inflate their value artificially. Securities fraud can be conducted by companies, or individuals and it can lead to significant financial losses for investors.
One of the most well-known cases of securities fraud is Enron Corporation, a leading energy company that was found to have engaged in fraudulent activity from 1996 to 2001. The fraud involved the company's manipulation of its financial statement to show increased profits.
Fraud is on the rise, affecting individuals, businesses, and even entire nations. Fraudsters are becoming increasingly sophisticated, so forensic accounting and internal audit are exciting routes to take within a field that shows no signs of slowing down any time soon.
Are you wanting to make a difference in Forensics or Auditing? If you’re a graduate looking to enter these areas or a specialist looking to transition, Apollo are experts in forensics and internal audit recruitment and can help you reach your career goals. Give us a call to find out more.
