COST OF FRAUD TO AUSTRALIAN BUSINESS

| June 19, 2015

COST OF FRAUD TO AUSTRALIAN BUSINESS

Order Description

Business Research Proposal

The topic and Case study :

A.    THE COST OF FRAUD TO AUSTRALIAN BUSINESS
In the 2013 report “Fraud: The scope of the problem – An overview of fraud prevalence measurement” by Martha Deevy and Michaela Beals it is stated that
There is no question that financial fraud is a pressing concern. With billions of dollars in losses impacting an estimated tens of millions of victims, fraud is a major problem … But the wide range of fraud prevalence estimates makes it difficult for law enforcement, practitioners, and policymakers to assess the true scope and impact of the problem.
Investigate fraud in the Australian context using Deevy and Beals’ report as groundwork for your research
Reference
Financial Fraud Research Center. (2013). Fraud: The scope of the problem – An overview of fraud prevalence measurement. Deevy, M. and Beals, M. Retrieved from

http://fraudresearchcenter.org/wp-content/uploads/2013/11/Scope-of-the-Problem-FINAL_corrected2.pdf

ASSESSMENT TASK 2: Proposal DESCRIPTION

The final section of the research report (assessment task 1) will include the identification of additional research required to address the business case decision or problem.  Students will develop a simple research proposal designed to gather the additional information identified in that final section.   Students will be given a template  for the research proposal.

ASSESSMENT TASK 2: CRITERIA SHEET

Basic requirements necessary for a Pass
1.             The proposal uses the template provided and includes all relevant section
2.    The proposal is properly referenced and no problems are identified through safe assignment
3.    The proposal is free of spelling and grammatical errors (it has been carefully proof read)
General Assessment Criteria (each criterion carries equal weight in regards to marks)
Criteria
Quality of writing
(good quality writing uses clear sentences, organized into coherent paragraphs that follow a logical order)
Description of the research problems, objectives or questions and scope of the study
(a good section here will demonstrate a thorough consideration for the decision and problem, identify the most important sets of information necessary and establish a logical connection to a set of clearly described relevant research questions)
Overall research design including approach, tradition and strategies for data collection
(a good assessment of research designs will demonstrate a clear understanding of what the different research designs are and the different sorts of data they generate and provide a clear and logical argument to support the selection of the research design for the research questions)
Identification & measurement of key variables
(a good response in this section will identify the most important variables and describe appropriate ways to measure them)
Description of sample & sampling
(the required sample described is appropriate for the research questions, the proposed sampling procedure is appropriate for this sample)
Awareness of ethical issues
(a good response in this section will identify the key ethical issues associated with the research design and sampling procedure chosen for this proposed research and suggest options for responding to these issues)

The Business Research Proposal
BX2174: Research & Decision-Making for Business

1.    Background to the Business Problem/Context for the Research
In this section you should provide a context for the proposed research.  This should include a brief description of the business problem that needs to be addressed.  In this section you should summarise key points from the literature review and conclusions from your research report.  This section should be approximately one page in length. It should provide an explanation of what knowledge is required and why the research is needed. At the end of this section you should present your research questions (it is recommended that you focus on 2-4 specific research questions)

2.    Overview and Background to the Proposed Method
In this section you should begin with a few sentences that provide an outline of what the proposed research methodology is.   Then you should provide an explanation of the research tradition, approach, design and strategy that is being used and justify these choices.  That is explain why they have been chosen and why you consider them to be the best option for the research questions you are seeking to answer.  This section should be no more than a page.

3.    Sample Requirements & Sampling Options

In this section you must describe the population of relevance to your proposed research, provide details of the sample that you require to answer your research questions, and outline the type of sampling process that you propose. You must explain your decisions in detail.  Where appropriate you should also discuss what sample size is needed and why. This section should be 1 page in length.

4.    Data Collection Details

In this section students should provide details on how the data will be collected and coded. These details, and the length of this section, will depend on the nature of the proposed research design and strategy. The following is a basic list of what is required for each type of research strategy. In all proposals student must explain how the proposed design will provide answers to the research questions. It is recommended that students search for examples of the research strategy in a business situation and read the methods sections to get an understanding of what decisions need to be made.
A.    Focus groups/face to face interviews (with no questionnaire) – exactly what questions will be asked and in what order (include the focus group schedule of questions and instructions to the focus group facilitator), what materials will be given to the participants, how will it be recorded , how will it be coded (include a preliminary coding scheme)

B.    Observations – describe the type of observation (eg., participant/unobtrusive, remote), where and when it will be conducted, what will be recorded (include the observation schedule and instructions to the observer) , how will the data be coded ( include a coding sheet if it is not already part of the observation schedule)

C.    Analysis of online/archival information – what will be coded and how – include coding instructions and coding framework

D.    Surveys using questionnaires – draft questionnaire must be included and details of how the questionnaire will be administered must be provided.  A code book for the questionnaire should also be developed

E.    Case studies – students should provide details of what data will be analysed, where it will come from and how it will coded and then analysed.

F.    Experiments – the details of the location and design of the overall experiment must be provided.  Students should also explain the experimental conditions and provide details of how the data will be collected.  For example, if it is through observations then the details for observations listed above should be included, and the same for questionnaires and interviews ( include the details listed above)

5. Ethical Issues
In this section you must identify and discuss the ethical issues associated with the proposed research design you have chosen. You should also suggest options for dealing with these issues. You must explain your decisions in detail and that include:-
–     identifying the level of risk associated with the research and justifying that level,
–    if the project is above a level 2 explain how the risks to the participants will be managed
–    providing details of how the sample will be approached and invited to participate and how informed consent will be ensured (include an example of the information that will be provided to participants in a simple table),
–    explain how participant confidentiality will be protected
The length of this section will depend on the nature of the research being proposed but it is unlikely to be more than 2 pages and for most students it will be approximately one page.

7.    References
You must list here any references in APA style that you have used in the body of the proposal to support your statements.

1.    Executive Summary

This research paper aims to reconcile the variability of prevalence of financial fraud. It seeks to offer an explanation why it is hard to get or find valid and reliable estimations on the same. After the study, suggestions on how to improve the measurement of fraud prevalence have been offered.

Reasons for Research
?    To examine the estimates in the range of fraud and examine trends on re-victimization
?    To find out the cost of fraud.
?    To find out the range of estimates of under-reported fraud.
?    To find out what makes victims of fraud to report or not to report and how are those who report different from those who do not report their victimization.
?    To find out an estimated number of people who fail to admit to being victimized.
?    To find out how cases of under-admitting and under-reporting can be reduced.

Methodology

The methodology adopted in this research is conducting a survey. The dependent variable is fraud while the independent variable is information on fraud. A survey is easy to administer and allows the researcher to use a large sample group as previous researchers have had a limited sample group.

Key Findings and Conclusions

A study conducted in Florida showed that Florida had a lower victimization rate than other countries. This was attributed to a successful, aggressive public awareness campaign. Another finding in his research is that victims of fraud could not remember details about their experience on fraud. Therefore, it was concluded that the study should consider the different prevalence periods: long time frames and short time frames, as memory decay had an impact on remembering.
2.    Problem Statement & Research Objectives

Problem Statement

Fraud is misrepresentation or concealment of facts to a transaction involving goods, services or both. The committing of fraud is usually with the intention of deceiving another person who is reasonably relied upon by the other person who is injured thereby.  Accurate and reliable information on the estimates of fraud has not been provided. Also, there has been a niche on understanding what policies work or do not work when protecting victims from harm. Although estimates have been carried out, their findings vary widely. This variation makes it difficult for people in authority and researchers to understand the scope of the issue.

Research Objectives

?    To place fraud prevalence research into a broader context of victimization.
?    To provide an overview of the various costs associated with fraud apart from the tangible costs (monetary costs)
?    To identify ways through which the validity and reliability of fraud prevalence can be increased.
?    To conduct research on a broader context of survey methodology through applying scientific methods in research and analysis.

3.    What is Already Known about the Decision or Problem

Literature Review

Fraud is a crime by law. Crime impacts on businesses significantly, regardless of traditional crimes to highly perpetrated crimes. Although people are not quick to admitting to fraud in business, entrepreneurs have experienced fraud at least once. People overlook the possibility of business being fraud victims yet commercial premises face a greater risk of criminal victimization. In some instances, some enterprises may be subjected to re-victimization. Despite fraud costing a business substantially, many owners underestimate its impact on their businesses. Fraud takes the form of identity fraud, advance fee schemes, non-delivery and defective goods and services or unsolicited and unwanted goods and services. Businesses may be unable to recover from fraud, and this may result to searching for extra sources of income or a more fatal outcome which is dissolution.
In Australia, reported fraud was estimated to cost about $8.5b. This figure was obtained after only 100,000 cases of fraud were reported, which is estimated to be 25%. Financial loss of personal fraud was $997m in 2007 when combined together. Thus, it was concluded that fraud cases were not being reported as it is expected. However, despite approximations underestimating the cost of fraud, the size of the issues is well reflected by the findings.
The findings of this report also included that the rate of victimization was different in regard to individual definition of fraud. Secondly, fraud based on bank or card fraud was the most reported. Lastly, the report concluded that annual awareness campaigns on raising awareness on fraud, enhance enforcement and generate interest on the same was crucial in an effort to reduce incidents of fraud.
Another research conducted on fraud showed despite improvements in reporting and tracking crime, quantifying the cost of fraud is still hard. Also, the costs of fraud were equally colossal to any other crime a business may experience. Identity theft accounted for a loss of $1.1b in 2001; unrecorded fraud was estimated to cost $72, 000 while recorded fraud was estimated to cost $491m; undetected fraud cost $1.47b ; money laundering was estimated to cost $3.2b . These figures are still high despite efforts to curb fraud.
After this research was conducted the wide range of fraud types, volume of hidden fraud, and unknown costs of detected fraud were issues facing the accurate and valid calculation of the cost of fraud. Also, from this research, money laundering was the fraud with most costs. In addition, the research concluded that fraud was in the rise due to electronically assisted identity theft and other cyber-style crimes.

Another research conducted by Financial Fraud Research Center showed that the range of money lost through fraud ranges from under $50 to $1m. This variation was caused by there not being a “typical” loss for victims and no “typical” cost for consumer expenditure. This research also studied cost of fraud in terms of indirect costs such as exploitation of social and religious ties or bonds characterized by deep trust, psychological costs, non-monetary costs or prosecution costs.

The findings of the report were, first, despite increased cases of fraud, most cases were not being reported. Fraud cases had risen to 990,000 complaints in 2011 from 815,000 in 2010. Secondly, costs of fraud are varied in their types and their effects are not only financial. Also, the research found out that known victims did not admit to victimization due to fear of stigmatization or memory decay. Lastly, it was not clear on what types of frauds were the most common.
The research conducted was limited by the fact that respondents could not admit to being victims of fraud. This was caused by memory decay, attempts to avoid stigmatization, lack of knowledge on the forms of fraud and authorities inability to realize fraud. Also, different works examined above did not have a uniform method of data collection as it was collected for individual use. Another limitation of the studies conducted above is specific to victim groups and not the general population. In addition, forward-telescoping of events that happened outside the time constraints of the research and presenting them as recent events may be present. Lastly, respondents may give biased information by stretching the truth or by telling lies so as to sound socially accepted. The researchers however, exclude the characteristics of the population sample, such as area of residence; gender age and what type of frauds were experienced, in the study.
Despite the limitations stated above, all report findings showed that fraud costs businesses a hefty amount of money. Also, another finding is that not all cases were reported. Lastly, fraud cases have been rising despite efforts to curb fraud. Therefore, areas such as ways on how to make people report all fraud cases, the age bracket which is susceptible to fraud, which gender is susceptible to fraud and ways on how to obtain all cases of fraud are areas of potential research. These areas are important in shedding a new light on fraud and equipping the population on potential fields of research. Also this will help the entrepreneurs get the courage to report all cases of fraud. Also, policy makers will formulate policies on reducing fraud from an informed perspective since fraud has been on the rise despite awareness campaigns. Lastly, there will be a clear outline of the common types of frauds and an inclusion of the time and money spent in efforts to avoid fraud will be provided.
4.    Concept Framework & Research Questions

Conceptual Framework

Fraud is a rampant occurrence in the globe. Many individuals, organizations and even countries are victims of fraudulent activities. Fraudulent activities are detrimental to the victims, whether organizations or countries. This, being the case, thus it is essential to understand the various elements of fraud in a bid to avert it. Thus, this study seeks to delineate the cost of fraud in Australia, and in a bid to do so, a conceptual diagram is of essence. The conceptual diagram shall depict the various inputs that result to fraud, the processes resulting to fraud and the output of fraudulent activities in Australia. The various elements constituting the inputs of fraud include the internet, weak legislation, and inadequate knowledge, increased number of fraudsters, as well as inefficient security measures and personnel to deal with fraudsters. Various processes occur warranting their classification as fraud because they result into fraudulent activities being committed. The processes involved in committing frauds include identity theft, collusion at the workplace, as well as the element of hacking and other cybercrimes. A combination of the above mentioned factors and processes results to fraud, which has various implications, including increased costs of doing business in terms of security measures, business losses, unemployment as business tend to shut down due to insolvency and investors shy off from undertaking investment activities. Additionally, fraud results to reduced levels of GDP as economic outputs reduced, as well as increased lawsuits by businesses, individuals, and even the government, which means increased financial costs to these entities. The relationship between the above elements is represented in the diagram below

Diagram 1.0: Cost of Fraud in Australia

By investigating the impacts of fraud cases and causes, this research will focus on the elements that caused by fraud. Therefore, the research questions are:
•    What are the consequences of fraud on the business environment?
•    What are the influences of increasing the security measures?
•    What are the factors of fraud in business environment?

5.    Secondary Data Analysis –results and discussion

Secondary Data Analysis

Fraud costs businesses a substantial amount of money. According to research, only 100,000 cases are reported and they only account for $8.5b annually. The types of fraud being experienced include identity theft, financial advice, credit or bank card fraud, identity fraud and pyramid schemes. The table below shows types of crime and the percentage costs. In 2005, fraud accounted for 40% of total financial cost of crime. The table below shows different crimes and percentage loss experienced by businesses.

Crime
Percentage (%)
Fraud     40
Burglary    10
Criminal damage    7
Shop theft    4
Theft of vehicles    3
Theft from vehicles    3
Robbery     1

Therefore, fraud still costs businesses more than any other crimes costs businesses. The figure is still high despite not all cases being reported. This high rate of fraud can be attributed to increased electronically assisted crimes.
Data also shows that reporting rates of fraud vary considerably. These variations may caused by varying definitions of what fraud is and lack of awareness of fraud incidents. This may lead to under-reporting. Thus, 15% of fraud incidents were reported to a formal agency, 35% of fraud victims reported to a formal agency.  29.3% did not report victimization at all. Report of fraud to law enforcement was 65%, to a formal agency was 13% and report to an official cause was 8.4%. The difference between reported cases and non- reported cases vary widely. Also, reporting rates for different types of fraud vary largely. For the variations to be limited, an increase in the rate of reporting is important as it will lead to formulation of strategies to encourage people to report victimization without fear of victimization.
Another study conducted reflected that fraud does not have tangible costs only, in terms of money. Some intangible effects of life affect the quality of life of the victims, mostly in violent crimes where the victim is assaulted. Assault is divided into common assault and grievous bodily harm. After assault costs are mainly incurred through criminal justice expenses and health costs. Loss of property is still another expense associated with fraud. The table below shows the estimated costs of common assault and grievous bodily harm for the year 2003 and 2008 and their average costs. From the table below costs of common assault have been on the rise with a slight difference. The difference between grievous bodily assaults is higher than that of common assault. The estimates below are likely underestimates since cases of fraud are rarely reported. Also, victims may not give the correct information due to memory decay, giving accounts that are socially acceptable or due to authorities lack of knowledge on how to deal with information on assaults.
Type of Assault    2003    (,000)    2008        (,000)    Average Costs
Common          Assault    425    450    437
Grievous Bodily Harm    9,135    7,015    8,075
Table 2                                            All figures are in Australian Dollars

6.    Implications for the Business Decision or Problem

Implications for the Business Decision or Problem

The limitations in the report are limited. A few questions arising from the literature review and secondary data analysis are as follows.
?    The study relied on the honesty and memory of respondents. If memory decay happened, the responses could be over-done or lacking in details. Some respondents may not be honest as they want to account information that is only socially acceptable.
?    The study did not consider the characteristics of the fraud victims such as the age, gender and area of residence so as to get a more data on the prevalence of fraud on the above named reasons.
?    There was no data on available on non-tangible costs associated with fraud for the years 2004, 2005, 2006 and 2007. This makes it hard for researchers to draw conclusions on the trend of fraud for the area of their study.
Victims of fraud need to be encouraged to report cases of fraud to the relevant authorities. Costs of fraud need to be accounted for despite them being tangible or non-tangible. From the above report,
?    An aggressive campaign on fraud awareness should be launched and policies put in place on how to deal with fraudsters and how compensation is to be carried out.
?    Avenues of reporting fraud should be created by the creation of a single portal for reporting of fraud cases as they happen.
?    Victims of fraud should be encouraged to volunteer information on cases of fraud

References

Martha, D., and Michaela, B. The Scope of the Problem: Overview of Fraud Prevalence Measurement. (2013). Financial Fraud Research Center. Sydney.
Kiah, Rollings. Counting the Costs of Crime in Australia: 2005 Updates. (2005). Australian Institute of Criminology. Sydney.
Pat, M. Counting the Costs of Crime in Australia: Technical History. (2003). Australian Institute of Criminology. Sydney.
Jim, G. and Mark, B. The Financial Cost of Fraud Report 2013. (2013). University of Portsmouth Publisher. Portsmouth.
Floyd, J., F. Survey Research Methods. (2013). Sage Publisher. Print. Chicago.
Sechrest et al., 1998 cited in Kerley, K. R., & Copes, H. (2002). “Personal Fraud Victims and     a           their Official Responses to Victimization.” Journal of Police and Criminal Psychology,  a           17(1), 19–35.

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