FRAUD – Meaning, Element and Types

FRAUD

The term “fraud” is one which is used in variety of meanings. It is usually used as;

a. A tort at common law.
b. A name for false representation.
c. A name for such unfair dealings as it will induce a court of equity to refuse specific performance against the party who has been deceived by such fraud or in some cases, to grant rescission upon the complainant’s application.

According to Adeniji (2010), frauds refers to “an Intentional act by one or more individuals among management, employees, or third parties, which results in a misrepresentation of financial statements”. It may also involve,

• Manipulation, falsification or alteration of records or documents.
• Misappropriation of assets.
• Suppression or omission of the effects of transaction from records or documents.
• Recording of transactions without substance.
  Misapplication of accounting policies.

Adeniji (2010) further explains that among the various definitions of frauds, the most common is that “fraud is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. No definite and invariable rule can be laid down as a general preposition in defining fraud, as it includes, surprise, lickery, cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knowing”.

Frauds is also defined “as the crime or offense not deliberately decreeing another in order to damage them usually to obtain property or services injustice”. Ekeigwe (2010).

Also Kano (2004), Opines that “frauds and forgery are jointly defined as irregularities involving the use of criminal detection to obtain unjust or illegal advantage”.

ELEMENTS OF FRAUD

All kinds of frauds including financial statement fraud are outcome of at least three (3) elements which include, pressure, opportunity and rationalization. These three elements make up what we call the fraud triangle.
1. Pressure or motive: it is the need for committing frauds.
2. Rationalization: The mindset of fraudster that justifies them to commit fraud.
3. Opportunity: The situation that enables frauds to occur and this often happens when internal control is weak or non-existent.

TYPES OF FRAUD

The different types of frauds which includes: Employee embezzlement, management frauds, investment scams, vendor frauds, customer frauds, miscellaneously frauds was categorized into three (3) broad headings by Keshi (2011), as internal fraud, external fraud and corruption or collusion.

Internal Fraud: This is the most common form of frauds found in organizations. The perpetrators of this kind of frauds are managers (i.e. top or middle management) and employees.

External Fraud: This is another form of frauds that is being perpetrated by those outside the organization, which may include customers or organized criminal.

Corruption or Collusion: This is one of the most difficult kind of frauds to recognize. It is frauds perpetrated within the corporation by an inside employee and an outsider.