Difference Between Fraud And Fraud

Fraud Identification and Classification Identifying fraud and understanding the difference between fraud and errors or omissions is an important aspect of business management. Evaluate the case of an employee of Company XYZ who is traveling for business in a city where the employee has extended family. In the evenings, the employee invites his family to dinner and charges the entire cost of the meal to his company credit card. He then subsequently files an expense report for these meals. The meals were not overly extravagant expenditures and thus are “lost” in the overall expense report. The employee considers this to be insignificant. Does this inclusion of these meals constitute fraud? This is where it becomes important for a manager

The main and often differentiating part of fraud versus error is the intentionality of the act. An error is not caused intentionally and can include a discrepancy in a dollar figure or an incorrect application of an accounting policy (Investopedia, 2015). Fraud is an intentional misrepresentation or a deliberate deception to secure a gain (Wikipedia, 2015). It is important to make this distinction for the organization and to differentiate fraud that happens on behalf of the organization or against an organization. When fraud occurs against an organization, it is taking place within an organization. Different types of fraud occur within an organization. The below table illustrates the types of organizational fraud.

Table 1

Types of Organizational Fraud Example of Fraud

Employee embezzlement Most common type and occurs when an employee takes company assets either by stealing cash, inventory, supplies or other assets.

Management fraud Most expensive type of fraud and occurs when management manipulates the financial statements in order to make the company appear more successful.

Investment scan This type of fraud seeks to get investors to

Vendor fraud Vendors provide fewer goods than agreed or lower quality than acceptable.

Customer fraud Customers either pay too little or do not pay at all.

Miscellaneous fraud Applies to anyone who takes advantage of the company in an effort to deceive