Impacts of Fraud on Companies and Businesses
Financial Losses for the Company
Fraud has a profound effect on both individuals and organizations. When an employee embezzles company assets, the financial loss can often be readily quantified. However, if a small business owner engages in fraudulent practices regarding their financial statements, accurately assessing the total losses can be much more challenging.
Loss of Public Trust
The occurrence of fraud within an organization can significantly undermine public trust. Even if some instances of fraud are minor or have a limited financial impact, the repercussions on the relationship between the public and the company can be substantial. As a result, the company may find itself needing to pay a premium to secure credit due to the diminished trust.
Destruction of Businesses
The impact of fraud on business continuity can be catastrophic. A notable example occurred in 2001 when a major energy company was implicated in a massive fraud scheme. This organization used various deceitful practices, such as concealing financial documents that accurately represented the company’s financial health, to manipulate revenue figures and distort profits.
Increased Auditing Costs
When small businesses are required to conduct audits due to fraud revelations, auditing costs typically escalate beyond normal levels. This is especially true if the fraud is perpetrated by management, resulting in significant expenses for more extensive scrutiny of the company’s financial records.
Impacts of Fraud on Individuals
The effects of fraud are particularly acute for individuals, especially those with fixed incomes such as retirees. These impacts may include:
- Issues with personal credit.
- Increased emotional distress, such as depression and marital conflict, leading to feelings of vulnerability.
- Loss of safety, comfort, and stability, along with pervasive feelings of fear.
- The emergence of psychological problems, including insomnia, anxiety, and other stress-related conditions.
Impacts of Fraud on Society
Fraud also exerts a widespread influence on society at large, leading to several significant repercussions:
- Deterioration of the economic environment, resulting from financial issues that directly affect the community.
- A decline in the local economy due to losses incurred by public services, including law enforcement, transportation agencies, and fire departments.
- Increased emotional and psychological burdens on both victims of fraud and the broader community.
- Higher mortality rates and incidents of physical harm among victims and innocents affected by fraud, further detrimentally impacting society.