“In law, fraud is deliberate deception to secure unfair or unlawful gain.” (”Stealing by lying”).
Both a civil wrong (→ lawsuit) and a criminal wrong (→ prosecution by the state).
Very short history: first recorder instance in 300BC. Hegestratos took out a “bottomry” whereby a lender lends money for a sea voyage, and receives payback (with interest) when the voyage is completed and the cargo sold. If the ship sinks or the cargo is lost, the loan is forgiven (so almost a form of insurance).
Hegestratos planned to sink the empty boat and sell the cargo (corn). Didn’t work, downed when he was trying to escape his angry crew and passengers that caught him in the act of trying to sink the vessel.
And it’s been with us ever since. So called 419 scams (after the section in the Nigerian penal code that describes it) have been popular since the late 16th century (then called the “Spannish prisoner”.
Today, it’s a large problem: according to one source, organizations typically lose 5% of their revenue / turnover to fraud each year. Fraud by owners and executives are typically nine times as costly as employee fraud.
There are many different types of fraud. Wikipedia lists circa 170 different named confidence tricks, internet scams, and pyramid and ponzi schemes:
Confidence trick — gain someones trusst and betray it.
Appeal to someones charity, compassion, or greed.
Internet fraud — use cheap communication to many different people and automation.
Sales / payment fraud, reshipping / money mule, marketing, phishing, international charge telephone numbers, etc…
Pyramid schemes / Ponzi schemes
The increasing number of people you recruit pay off the people at the top.
However, we’ll look mostly into business fraud aka financial fraud.
We’ll start easy.
Cohen lists 50 different kinds of back office frauds, i.e. ways of “cooking the books” by an insider to defraud the company (or the tax authorities) (Fred Cohen — Fraud, spies and lies — and how to defeat them, 2005 (available on-line)).
But there are also many other types of financial fraud in the e.g. stock market etc.. that are qualitatively different.
Accounting (bookkeping) is the art of keeping track of you money (business).