For a Safe Tomorrow – January 2026

This bulletin is available for download as a PDF.

FRAUD AND MISUSE

According to the 2024 ACFE Global Study on Business Fraud and Exploitation International Report, Companies lose approximately 5% of their annual revenue due to fraud and misuse. Approximately 32% of fraud and misuse are due to a lack of internal controls, and 19% are due to breaches of existing internal controls.

Fraud and misuse in the real sector during the 2020–2024 period increased in both variety and frequency due to factors such as the global pandemic, digitalization, inflationary pressures, and supply chain disruptions.

MAIN CAUSES OF FRAUD AND ABUSE

1- Economic Pressure and Financial Difficulties

• Inflation, cash flow problems, and increasing financing costs
• Pressure on performance and profitability
• Narrowing profit margins in businesses

Result: Employees and managers seeking “shortcuts to success.”

2- Weak Internal Control and Audit Structures

• Lack of separation of duties
• Weak or passive internal audit
• Unclear authority limits

Result: Fraud is easier to conceal and is detected late

3- Gaps Arising from Digitalization

• Weak authorization structure in ERP and accounting systems
• Cyberattacks, phishing
• Payment instructions via a fake email

Result: High-value financial losses and data breaches

4- Lack of Ethical Culture and Weak Management Understanding

• Top management ignores unethical behavior
• Lack of written ethical rules
• Lack of a whistleblowing mechanism

Result: Normalization of fraudulent behavior

5- Covid-19 Pandemic and Remote Working

• Physical
• Lack of control
• Weaknesses in documentation and approval processes

Result: Abuses, especially in purchasing and payment processes

MOST COMMON TYPES OF FRAUD IN THE REAL SECTOR

1- Employee-Related Fraud

• Type Description
• Embezzlement: Taking money/products from cash and inventory
• Fake expense, Unreal expense receipt
• Fictitious employee Payroll fraud
• Abuse of authority, Irregular approval

2- Supplier and External Fraud

• Fake invoice
• Collusion with the supplier
• Incomplete delivery of goods
• Inflated prices

3- Managerial Fraud

• Financial statement manipulation
• Inflation of income
• Deferral of expenses
• Making the balance sheet appear better than it is

SOME CONSEQUENCES OF FRAUD AND ABUSE

1- Financial Losses

• Direct loss of money
• Compensation
• Legal process costs

2- Loss of Reputation

• Decreased customer trust
• Bank and investor relations Damage
• Brand value decreases

3- Legal and Criminal Sanctions

• Tax audits
• Criminal cases
• Bidding bans

4- Operational Disruptions

• Process halts
• Supply chain disruption
• Decreased staff motivation

5- Deterioration of Corporate Culture

• Perception of “They won’t get caught anyway.”
• Contagious ethical erosion affecting other employees

Fraud and abuse in the real sector are risk factor that needs to be managed. Examples include authorization and approval management, inadequate or insufficient access controls, verbal approvals, fraudulent sales, fake suppliers, fake returns, exploited discounts, fictitious employees, urgent payments, intra-company collusive transactions, technology scams, etc. Lessons can be learned when the causes are thoroughly examined. A strong risk management and internal control system, a robust and adequate assurance environment, will detect vulnerabilities promptly, reduce opportunities for fraud and abuse, and guide organizations in taking timely precautions.

Alp BULUÇ

TeoLupus Partner

alp.buluc@teolupus.com

What is Fraud vs. Abuse?

Fraud and abuse are related concepts often used in the context of unethical or illegal activities, but they have distinct meanings.

Fraud: Fraud involves intentional deception or misrepresentation to gain an unfair or dishonest advantage. It often involves deceit, manipulation, or false information to obtain financial or personal benefits. Examples include credit card fraud, identity theft, insurance fraud, and Ponzi schemes.

‍Abuse: Abuse refers to the misuse or excessive use of something in a way that is harmful or goes beyond its intended purpose. In the digital realm, abuse often refers to misusing systems, services, or platforms. Examples include email spamming, click fraud, and the use of bots to manipulate social media engagement.

Common Fraud Schemes vs Common Abuse Tactics

Some of the most common types of fraud include:

• Account Takeover: Unauthorized individuals gain access to user accounts, often through phishing or hacking, and exploit them for financial gain or to impersonate the account holder.
• Application Fraud: Fraudsters provide false information or documents when applying for services, credit, or accounts, with the intent of securing benefits dishonestly.
• Business Email Compromise (BEC): Cybercriminals compromise business email accounts to conduct scams, including invoice fraud, which trick organizations into making payments to fraudulent accounts.
• Collusion: Multiple individuals work together, often within an organization, to manipulate systems, transactions, or data for illegal gain.
• Insider Threats: Individuals with authorized access to systems and data misuse their privileges for personal gain, often involving theft of sensitive information or fraud against their own organization.

On the other hand, some of the most common types of abuse include:

• Email Spam: Sending unsolicited and often irrelevant emails to many recipients.
• Click Fraud: Intentionally clicking on online ads to generate revenue or exhaust an advertiser’s budget.
• Social Media Manipulation: Using bots or fake accounts to inflate likes, shares, and comments on social media posts.
• Content Scraping: Unauthorized copying of online content for commercial gain.
• API Abuse: Misusing application programming interfaces (APIs) to overwhelm servers or access unauthorized data.

Differences between Fraud vs. Abuse

Fraud is centered around intentional deception for personal gain, often involving financial harm. On the other hand, abuse can be intentional or unintentional and may involve misuse or overuse of resources or systems without necessarily gaining direct economic benefits. Both can have negative impacts on individuals and businesses.

Solutions for Fraud vs. Abuse

Effective solutions for preventing and mitigating fraud and abuse often involve a combination of technological tools, process improvements, and user education. Here are some general strategies:

• In the realm of cybersecurity, a multifaceted approach is essential to safeguard sensitive systems and information. Employing advanced data analytics forms a formidable shield against potential threats. By meticulously scrutinizing data, one can uncover subtle anomalies and behaviors that often signal the presence of fraud or abuse, enabling swift and effective countermeasures.
• User protection extends further with the strategic implementation of multi-factor authentication and identity verification. This preventive measure is a robust barrier, deterring unauthorized access and fortifying security layers. Leveraging the power of machine learning and AI bolsters defenses even further. Through continuously analyzing evolving tactics, these algorithms adeptly discern and adapt to novel fraudulent or abusive activities, maintaining an unwavering vigilance against threats.
• To ensure a resilient security ecosystem, consistent monitoring and auditing are paramount. Regular assessments allow companies to proactively detect and address suspicious activities, nipping potential breaches. Moreover, empowering users with knowledge is the backbone of a good defense strategy. Educating individuals about prevalent fraudulent and abusive tactics empowers them to recognize and thwart potential threats, creating a united front against cyber adversaries.

Fraud, Corruption, and Money Laundering: The Hidden Dangers in Business

It rarely starts with fireworks. It’s usually a quiet beginning. More often, it begins with small, almost invisible acts: a trusted employee alters a few invoices, a procurement officer accepts a “gift” from a supplier, or a large deposit slips quietly into a company’s account.

On their own, these events might seem minor quirks of business life. Yet behind them lies the shadowy, interconnected world of fraud, corruption, and money laundering. These risks do more than drain money, they destroy trust, distort decision-making, and damage reputations. These are not just compliance buzzwords; they are forces that can drain a business of profit, cripple competitiveness, and erode the very trust that makes markets function.

In today’s business environment, where financial transactions are global, digital, and fast-moving, these risks are not confined to large corporations or banks. They affect SMEs, family businesses, and public institutions alike. And while they can feel overwhelming, understanding them is the first step to defending against them.

Fraud: When trust becomes a weapon

Fraud is the unlawful, intentional act of deception designed to secure unlawful gain or cause harm to another party. Unlike errors or negligence, fraud is deliberate, concealed, and self-serving. It takes many forms, from financial scams, inflated expense claims, payroll manipulation, creating fictitious vendors, or misreporting revenue to corporate deceit to personal deception. Fraudsters exploit gaps in systems and often rely on the trust placed in them to cover their tracks.

The key elements of fraud

False representation: Fraud begins with a false representation, whether a lie, a misleading statement, or even the deliberate omission of critical information. The purpose of this misrepresentation must be to deceive the victim.

Knowledge of falsity: The perpetrator must know that what they are presenting is untrue. Fraud cannot be excused as ignorance or error; deliberate awareness of the falsity is essential.

Intention to defraud: Fraud requires intent. The perpetrator must intend to cause harm or secure an unfair advantage, influencing the victim to act or not act based on the false information provided.

Resulting loss or damage: For fraud to be proven, the victim must suffer measurable harm as a direct result of the deception. This may be financial, reputational, or another form of tangible loss. Without demonstrable damage, a fraud claim cannot succeed.

Red flags:

• “Too good to be true” financial results.
• Employees living beyond their apparent means.
• Resistance to oversight or sharing responsibilities.
• Repeated overrides of internal controls.

Example: A mid-sized firm uncovered that a finance clerk had created ghost suppliers and diverted funds into personal accounts. It went undetected for months because the same individual managed both authorizations and reconciliations due to no segregation of duties.

Mitigation: Preventing fraud requires a blend of strong systems and culture. Internal controls, segregation of duties, regular audits, and data analytics can uncover anomalies early. Just as important is fostering an environment where employees feel safe reporting suspicious activity. Fraud thrives in silence; transparency is its antidote.

Corruption: When power is abused

While fraud is often hidden in the books, corruption is woven into relationships and influence. It occurs when power entrusted to an individual is abused for personal gain. This misuse of power breaks down the trust between parties and weakens the very foundation of democracy. Beyond politics, corruption stifles economic growth, deepens poverty, and widens inequality

Corporate corruption takes root when businesses abandon ethics in pursuit of profit or competitive advantage. It manifests through practices such as bribery, fraud, insider trading, money laundering, and tax evasion. Sometimes it’s blatant; other times, it hides in “grey areas” like excessive hospitality or conflicts of interest.

The damage runs deep, weakening economies, undermining fair competition, stifling innovation, and eroding consumer rights. Its ripple effects extend beyond boardrooms, driving economic inequality and even contributing to environmental harm.

Key elements of corruption:

Abuse of Entrusted Power: Corruption occurs when individuals in positions of authority misuse the power given to them for personal advantage. This could be a government official influencing legislation for private benefit, or a corporate manager manipulating procurement processes. The abuse lies not only in the illegal act but in betraying the confidence placed in that role.

Breach of Trust or Duty: At the heart of corruption is broken trust. Leaders, officials, or employees are expected to act in the best interests of the people, organization, or institution they serve. When they act against this duty for bribes, favours, or personal motives they compromise both ethical and legal obligations.

Personal or Organizational Gain: Corruption is always about benefit, whether it’s personal enrichment (money, gifts, favours) or organizational advantage (contracts, licenses, market dominance). This gain comes at the expense of fairness and transparency, often disadvantaging those who follow the rules.

Often Involves Collusion: Corruption rarely happens in isolation. It often requires cooperation between the bribe giver and taker, between businesses and regulators, or between internal staff and external vendors. This collusion creates networks of corruption that are harder to detect and dismantle, making prevention even more critical.

Red Flags:

• Unexplained gifts or “consulting fees.”
• Overly cozy relationships with suppliers or customers.
• Repeated awards to the same vendor without competition.
• Lack of transparency in decision-making.

Example: A procurement officer consistently awarded contracts to a single supplier, despite inflated pricing and poor performance. Investigations revealed the officer had been enjoying overseas “business trips” paid for by the vendor. The company not only paid more but also suffered reputational damage when the scheme came to light.

Mitigation: Strong anti-bribery policies, transparent procurement processes, and third-party due diligence are essential. Just as critical is leadership when executives refuse questionable perks and set a tone of integrity, employees follow.

Types of fraud

Fraud detection begins with an understanding of the types of fraud risk organizations face. Generally speaking, they can be distinguished as internal and external.

Internal fraud

As the term suggests, this is fraud committed by people within an organization. Some examples that any organization should beware of:

• Accounting fraud involves deliberately falsifying financial statements and misappropriation of assets. This can be done in any number of ways, including overstating or understating revenue, assets, or expenses.
• Mail fraud involves using the U.S. Postal Service to commit fraud. For instance, if someone mails a contract regarding a fraudulent deal, the government could pursue a fraud conviction against the person who sent it. Wire fraud is similar to mail fraud, except that non-postal transactions are used.
• Check fraud involves creating counterfeit checks to defraud another. Someone may attempt to give a bad check to a bank to withdraw money that isn’t theirs.
• Payroll fraud, which in some cases could be considered a form of accounting malfeasance, can take many forms: requests for fraudulent reimbursement, sales contracts that turn out not to be real, or paychecks for nonexistent employees.
• Executives in a business may make false claims on financial statements to drive up its stock price or attract investors. Enron is an obvious example.

External fraud

• Identity theft occurs when someone uses another person’s name, Social Security number, credit card number, or other personal information. This is done to open new accounts, make purchases, or take out loans. It is a common technique used by external bad actors pursuing one of the following types of fraud.
• Bank fraud. Outsiders can illegally obtain money from a financial institution by any number of methods, most notably through false documents, forging signatures, or using stolen account information.
• In cases of insurance fraud, the person lies or withholds information to obtain insurance benefits or coverage to which they’re not entitled. Techniques include using false identities, exaggerating the cost of damages, and faking injuries (which can include falsified medical documents).
• Benefits fraud could be considered a kind of insurance fraud. Fraudsters will attempt to steal government benefits using false documents or false identities. They may also claim that they have a disability that makes it impossible for them to work.
• Healthcare fraud could involve schemes related to pain management, insurance scams involving false documents or unnecessary treatments, and kickbacks.
• Investment fraud. Investment fraudsters use false or misleading information to convince people to invest in a company or an investment strategy. The perpetrator may claim to have some secret knowledge or expertise, something that the “very wealthy” know that ordinary folks do not.
• Many of these forms of fraud can also be instances of cyberfraud. The best-known examples are phishing and ransomware attacks. Cybercriminals are typically looking to lock up an organization’s IT system for ransom payments or to make off with its valuable data.

Some of these external forms of fraud can also be committed internally. Bank fraud is an obvious example, though an organization insider might also participate with an outsider in investment fraud or insurance fraud.

Future fraud risk trends

History suggests that fraud risk will never disappear. With digital technology increasingly used as a fraud tool, technology will also play a key part in risk strategy as organizations face new fraud risks.

Synthetic identities

Digital technology is enabling individuals and fraud gangs to create synthetic identities–fake identities built upon real Social Security numbers or other purloined individual data. According to the McKinsey Institute, the use of synthetic identities is involved in about 85% of all fraud worldwide. This kind of identity fraud is expected to proliferate precipitously.

That doesn’t mean that phishing attacks using “realistic” emails supposedly from vendors and colleagues will let up. But cyberfraud is starting to take on new and disturbing forms. Fraudsters can disguise themselves as company executives and request accounting to immediately pay a fraudulent invoice or transfer money to a phony bank account.

Artificial intelligence

Fraudsters can use artificial intelligence (AI) to more effectively create synthetic identities or more convincingly disguise themselves. But AI also can help organizations combat AI and safeguard their business. AI can analyze large data sets to identify patterns of behavior that may indicate fraudulent activities. Machine learning algorithms are developing predictive models that can identify which individuals or groups are more likely to commit fraud. AI also could be used in verifying customer or applicant identities.

Multi-channel approaches

With fraud becoming increasingly complex, organizations will need to break down departmental silos to develop a risk management strategy that looks across numerous data points and risk signals. Such an approach can reduce risk and prevention expenses while making risk prevention, risk audits, and risk mitigation efforts more effective and timely.

Fraud.net

Laross.co.za

Thomsonreuters.com

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