Identifying causes and potential consequences of financial fraud

Abstract

Introduction. The article claims that due to the rapid growth of financial relations, advancement of globalization processes, the impact of IT and the Internet on financial performance, the number of economic crimes in Ukraine has increased recently, especially financial fraud offences. The authors provide evidence that fraudulent schemes have targeted not only public and private finance, but all social relations.

Purpose. Therefore, the aim of the paper is to address financial fraud as a global threat and identify its causes and potential consequences.

Methods. For addressing the causes and effects of financial fraud, the following general research methods are used: analysis, synthesis, induction, deduction, abstraction and grouping.

Results. It should be noted that the problem of financial fraud has not received sufficient attention in domestic research literature and practice. The paper presents the leading causes of financial fraud, which include economic, moral and psychological causes as well as regulatory, infrastructural and organizational ones. Financial fraud has a negative impact on the national economy and the welfare of citizens, and therefore leads to the multimillion losses. In order to identify consequences of financial fraud, a combination two types of evaluating such consequences is suggested: quantitative (involves the calculation of pecuniary damage, economic losses and lost economic profit due to fraud offences, and qualitative (logically explains circumstances of financial fraud, risks of losing corporate reputation, image and investment attractiveness). There are three major reasons why financial fraud occurs, which constitute the so-called fraud triangle: the opportunity to commit fraud; the pressure on the individual or the motivation behind the crime; the ability to rationalize the fraud. Therefore, the most important tasks for state bodies, economic entities and individuals include neutralizing the factors which lead to financial fraud and exercising effective control over the prevention of fraud offences in social and economic areas in general, and in financial area in particular.

Discussion. Further studies should focus on a comprehensive analysis of the most common types of financial fraud, which take place in Ukraine. The authors argue that this will lead to establishing a set of policies aimed at reducing this negative phenomenon.