An Insight into Financial Fraud


There was time when people used to believe in honesty and hardwork and used to conduct all their activities diligently and without committing any cheating or fraud but unfournately now the times has changes and the competition has increased, in this fast and furious world everyone wishes to be ahead of each other and majority of the population wants to win this rat race by using unlawful and illegal and shortcut means and now a days the concept of hard work, honesty is slowly dying and people tends to get indulge in such unethical, immoral activities, in this research paper we would be discussing what is financial fraud, types of financial fraud, international cases of financial fraud and then I would be emphasising on comparative analysis between two nations and also would be covering some relevant topis related to financial fraud. Financial fraud exists when someone, by false, misleading, or other fraudulent activities, deprives you of your income, resources, or otherwise damages your financial wellbeing. This can be executed through different methods, such as investment fraud or identity theft, if any type of financial fraud occurs then it's important that one should report the crime to authorise agency and law enforcement as soon as possible, because in later stages it gets very difficult to trace the person responsible for committing such crimes, there are several victim compensation programme which unfournately do not cover the money which is lost through fraudulent schemes so only legal resort is left with the person despite suffering the severe financial loss is to file a suit in the the court and invest more money in the court proceedings. victims can retain crime-related documents, such as financial accounts, credit records, present and prior year tax returns, and continue to file significant details during the filing period. people who are mainly involved in financial fraud are white collar criminals these people are have name, a high status in the society also have the sufficient knowledge and skills to deceive the person and these people are not caught very easily because they are highly influential people and have strong political connections so by using all their strong and powerful connections they escape from the nation by causing great loss to nations wealth and reputation as well the people who are badly impacted is the common man of the country. There are several different types of theft, but most fraud methods are designed to enrich those interested in committing the crime.

With the help of several tactics, such as face-to-face conversations through phone calls, SMS and e-mails, fraudsters can target their future victims. The ease of verifying the identities and credibility of individuals and businesses, the use of fraudulent websites and the theft of personal financial information by attracting people's attention to such websites, the international horizons of the Internet and the ease of concealing the true status of fraudsters all contribute to the rapid growth of Internet fraud and with rapid growth and development in the technology and an easy and cheap internet access to everyone now it has become a very easy task to commit online financial fraud by using various tricks and with time financial cyber crimes are increasing.

History and evolution

fraud is not a new concept it has been existing since a long time the first instance was recorded during 300 BC in greece. Hegestratos changed the world as shipping merchant by refusing to confront the insurers of a shipload of valued merchandise by sinking his boat while holding the cargo, and declaring the damage instead. This is the first known instance of theft involving first party insurers. the first case of financial fraud happened in 193 AD during the time of roman empire, the praetorian guard made an attempt to sell the rights to the royal throne but they had no right to do as it didn't belong to them so they were held responsible for financial fraud. In previous times also there were many instances of counterfeit of money and coins. The first Ponzi scheme was seen in the 1920s, a form of investment scam carried out by Charles Ponzi it's a very famous case .

Identity Fraud and Cheque Fraud was also widespread in the 1900s. Frank Abagnale Jr., who had over 8 different personalities , including an airline pilot, a doctor, and a lawyer, this story has been depicted in a movie called 'Catch Me if You Can'.

We believe Sherlock Holmes to be the first forensic accountant worldwide, but it is not possible to disregard the involvement of our great scholars from ancient India. In India, during the ancient Mauryan Times (321-296 BC), Kautilya was the first person to list the forty forms of embezzlement in his famous Kautilya's Arthashastra." There are about forty kinds of embezzlement".

Modern times

Still there are various types of fraud committed every year but the only difference is now the method of executing the crime has changed and people indulging in such activities have become more skill, technology driven and are applying new tactics to defraud people like tampering the ATM machines, hacking the their devices and stealing all the important banking details, the internet is a dangerous place therefore it should be used cautiously, some example of recent fraud are contactless card fraud, employee fraud, benefit fraud, mobile banking fraud, internet banking fraud etc The fact that the internal audit was conducted objectively and independently, the activities of the senior management of the Audit Commission and the poor regulatory environment were found guilty of fraud in the financial statements. The report's findings shows that weak internal controls, a lack of ethical values, and a lack of legal action against fraudsters have created such atmosphere.


The 4 elements of fraud diamond theory are :-

1) Pressure

2) Opportunity

3) Rationalisation

4) Capability

The pressure means it creates a pressure on the person to commit financial fraud like if the person has lost his job or he has to take care of his family but he has no money to buy food , clothing or has no money to pay for the medical bills then this pressure on an individual motivates him to commit fraud and the person get indulge in unethical behaviour , the pressure can be financial or non financial. There are 3 types of pressure ie personal, employment stress and external pressure . there are other perceived pressure like greed , drug addiction , personal debt , gambling , family's financial or health problem etc

The second necessary element is


It means that people will take advantage of the circumstances available to them, suppose the person has great position in the company has the access to all the data , accounts and other sensitive information so that person has the opportunity to commit financial fraud and deceive the company and other people associated with it .the lower the risk of being the higher the chances that the fraud will be committed . the employee recognises the weakness of the organization and take the advantage of the situation by indulging in such unethical and unlawful activities


It means here the person is trying to justify himself for the actions he has committed by giving a excuse like that it was necessity , he was under influence , pressure or he wasn’t paid according to the work he did etc so the idea should be morally acceptable before indulging in some unethical behaviour and so these people try to give excuses like i did this for my family and my employers was cheating on me or if everyone is doing they why not i etc so basically trying to give excuse for their fraudulent actions.


It is situation of necessary skill and traits required for the commission of financial fraud , the fraudster has the opportunity to commit the fraud and turn this thing into reality or has the special skills and influence over other people to provoke or motivate them for the same . position , ego , stress , coercion etc are the supporting elements of capability .

LEGAL Provisions

"The Companies Act, 2013, is the legislation which focuses on issues related to corporate frauds. Fraud in relation to affairs of a company or any corporate body as defined in S.447 of the Companies Act 2013, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss.

Any person who is found guilty of fraud shall be punishable with imprisonment for a term which shall not be less than six (06) months but which may extend to ten (10) years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three (03) times the amount involved in the fraud.


If any person has made a declaration in any return, paper, certification, statement of financial position, brochure, statement, or other documentation needed by, or for the reasons of, any clause of this Act or the regulations made thereunder that:

• is inaccurate in any material details, believing it to be incorrect;

• misses any relevant truth, believing it to be material"

Section 211 gives the power to central government to establish the department called serious fraud investigation office (SFIO) to regulate and investigate frauds relating to companies.

Types of financial fraud

  • "Mortgage fraud: This financial crime includes different kinds of illegal schemes involving some form of misrepresentation or misstatement on mortgage forms and documents. The Fraud Enforcement and Recovery Act, or FERA, helped to expand the reach of federal law enforcement officials in cracking down on mortgage fraud.

  • Embezzlement: This crime happens when an individual steals money or property that he or she has the duty to manage. This is a very common crime in employment and corporate settings since the movement of money in between hands occurs often.

  • Identity theft: This is when someone illegally obtains and uses another person’s personal data and information in some way that involves deception or fraud, typically for economic gain. It’s one of the fastest-growing crimes in America because our sensitive data is being tagged to more and more outlets.

  • Tax evasion: When a person or company purposefully underpays its taxes, tax fraud or evasion is occurring. This crime is purposeful, so it’s important to know that mistakes on your tax returns are not fraudulent, but the IRS will be watching you if you make many errors over time.

  • Securities fraud: This fraud happens when someone makes a false statement about a company or the company’s valued stock, and other people ma