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What Is Fraud?

Compliance Knowledge Base | Fraud Awareness

Posted by: Morgan Rennie Published: Tue, 11 Sep 2018 Last Reviewed: Tue, 11 Sep 2018
What Is Fraud?

Fraud is the act of deception, with the deliberate intention to conceal a crime which will offer an unfair advantage to the individual. Fraud might be conducted to achieve monetary advantages or documents needed to obtain a mortgage through unlawful procedure. Deliberate and wilful fraud is a severe and considerable crime; therefore, the penalties are taken seriously. If fraudulent activity occurs due to incompetence or negligence, it is not excessively penalised as fraud, but it will still require investigation. The UK Fraud Act 2006 is the law used to identify and establish fraudulent offences and their respective penalties, and therefore knowledge of this Act is essential.

What is fraud and how can it be carried out?

The UK Fraud Act 2006 is the legislative force used to identify fraudulent offences and to subsequently decide the penalties. The fraudulent offences which are stated in the Fraud Act include:

1) Section 2 - Fraud by false representation. This involves an individual consciously misleading another individual into a false sense of security, to the benefit of the perpetrator.

2) Section 3 - Fraud by failing to disclose information when there is a legal duty to do so. This involves an individual retaining certain information which is either beneficial to them or is incriminating to them, and therefore they do not want legal authorities using it.

3) Section 4 - Fraud by abuse of position. If an individual holds a position which has the responsibility of safeguarding the financial interests of individuals, then it is expected that they uphold this responsibility. However, if the individual abuses this position then they are effectively committing fraud to the disadvantage of their clients.

What Is Fraud?

The UK Fraud Act 2006 stipulates the penalties for the different kinds of fraudulent offences. Penalties can range from low level community orders to prison sentences and a fine of up to 150% of the individual's weekly income. The maximum penalty is 12 months of imprisonment on summary conviction and 10 years of imprisonment on conviction on indictment.

Fraud can be conducted by an individual, a group or an entire business, who all share a mutual interest in achieving a certain goal through deceit. To achieve this goal, they need to take advantage of information asymmetry; this involves the practice of deciding how likely it is they will be caught. Consequently, if it is going to be logical to conduct a smaller insurance claim which will go un-noticed, then they will do so, as there will be less incentive for the insurance company to investigate the claim.

Fraudulent activity can affect any type of business sector. The industries that are commonly targeted include:

- Finance

- Real Estate

- Investment

- Insurance

The way in which fraud is often conducted in these sectors includes tax fraud, credit card fraud, wire fraud, securities fraud, cyber fraud, identity fraud and bankruptcy fraud. These types of fraud are all very intricately crafted ways of deceiving the bodies which regulate these sectors.

In July 2018 East Yorkshire Police conducted an investigation into the crime of a property fraudster who had stolen £110,000 from victims. The fraudster had managed to commit fraud through establishing a business named Post Pad Lettings, which supposedly provided discounted house rentals, as well as cleaning services. The victims of this fraudulent scam had given money to Post Pad Lettings, but did not receive any service in return. This case is now being investigated by the Joint Fraud Taskforce, City of London Police and Humberside Police.

In order for an organisation to identify when fraudulent activity has taken place, you need to be aware of what constitutes fraud and subsequently how to deal with this. Therefore, education and compliance with the UK Fraud Act 2006 is beneficial.

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