Fraud is a form of deception perpetrated by individuals or organizations to gain illegally or unethically at the expense of others. While fraud is hard to quantify since criminals often fly under the radar, it is widely considered a significant cost of doing business. Depending on the industry, losses due to fraud may account for between 3% and 6% of total company profits. This does not include costs related to anti-fraud activities, as well as the loss of market position and customer trust.
Fraud can impact businesses both internally and externally. Internal fraud includes actions by employees and managers, such as embezzlement or cheating on taxes. External fraud includes acts committed against a business by outsiders, such as bribery, blackmail, and fraudulent suppliers or customers that submit bad checks or try to return stolen or counterfeit goods.
As fraudsters continue to become more sophisticated, it becomes increasingly difficult for companies to keep up. They are more organized and operate within complex networks, and many fraudsters work internationally.
Fraud occurs across a wide range of industries and is a growing concern for many firms, including those in the financial sector, retail and ecommerce, healthcare, insurance, and government. Each of these sectors faces its own unique challenges, from the theft of credit card information to smuggling drugs and weapons into a country or region. A robust fraud detection system is critical to safeguarding transactions, ensuring compliance, and mitigating financial crime risks.