Financial fraud is deliberate deception or misrepresentation of financial activities, records, or positions for improper benefit. It includes losses caused by employees, suppliers, or customers and higher-level misrepresentation by senior management or the company itself. section 1.1.1
Distinguish fraud by its target and operating level:
- Lower-level fraud bilks a company of money or goods, sometimes through collusion between staff and suppliers or customers. section 1.1.1
- Higher-level fraud misrepresents a company’s financial position to defraud investors, banks, or potential buyers. section 1.1.1
- Fraud detection overlaps with tax fraud, insurance fraud, anti-money laundering, and other outlier-detection applications. section 1.1.1
Why detection matters
A company may lose revenue through employee or supplier fraud, while senior managers may inflate earnings to influence stock prices or earn bonuses. Outlier detection provides a way to check for suspicious activity, although detected fraud is often unreported. section 1.1.1
