Posted by & filed under Fraud Accounting.


Frauds in general continue to be on the rise at an alarming rate in direct correlation with both the domestic and global downturn in the economy.

Those who might otherwise be predisposed to committing crime find themselves reaching states of desperation as a result of their inability to provide, in some cases, even the necessities of life.

In addition, organized crime groups capitalize on desperation by preying on those who are most vulnerable financially to join their forces in defrauding the wealthy. As recently shown in the Charbonneau Commission taking place in Quebec.

The recent “Occupations” ( The othe 99% demonstrating in the streets of New York and Montreal) that occurred throughout the world’s economic powers were a clear sign of many people’s frustration with the perceived divide between the wealthy and the impoverished. There is evidence to support that organized crime factions infiltrated those groups with a view to heightening the demonstrations and to recruiting potential fraudsters to assist in their attack against “the 1%”, which to many represents the growing wealth gap between America’s wealthy elite compared to the overall citizenry.

Difficult economic times:

Difficult economic times by nature give rise to increased fraudulent activity, while positive economic times open the flood gates for opportunity. What changes are the approaches and methods used by the fraudsters, and the potential victims they target.

What to watch out for in poor economic times:

In poorer economic times crimes such as identify theft, tax fraud, frauds against seniors, and mortgage fraud are prevalent. In more lucrative times investment frauds and ponzi schemes rise to the top of the criminal ladder.

Organized crime continues to play a lead role in financially based crime, particularly evident in North America.  Italian mafia groups continue to launder funds through legitimate stock trading, resulting in a corruption of the North American markets. Even the non-financial based criminal activity controlled by organized crime, such as prostitution and narcotics trafficking, results in funds being laundered through otherwise legitimate entities, further corrupting the world’s economic systems.

The impact of fraud on a global scale is apparent, from increased tax burdens facing both the private and public sectors, to increased insurance premiums, to a decrease in economic growth and consumer spending, fraud impacts everyone.

Internal fraud is clearly on the rise during times of economic strife, resulting in price increases across the board, budget reductions, and in more extreme cases, layoffs to offset the loss of income.

The “Catch-22” in all of this is that oftentimes these layoffs result in increased exposure to corporate fraud resulting from the reduction in safeguards and internal controls provided by employees who were laid off – fewer eyes watching the corporate coffers.

Corporate Accounting Implications:

Staff  reduction during poor economic conditions, has the effect of reducing Internal Control procedures or processes. These staff reductions can cause an increased opportunity to commit fraud and manipulate financial data in order to present Financial Information that appears better than the actual results.

As internal security measures and controls decrease, opportunity rises.

As indicated, the state of the economy in large part dictates the types of frauds that are perpetrated, identifies target groups for organized crime factions, provides unique opportunities for fraudsters, and reduces internal control measures aimed at preventing fraud.

Discussion Questions:

1. Do you agree that poor economic times, may increase opportunities for fraud.

2. How does fraud hurt you the taxpayer?

3. What is a Ponzi scheme?  Read this article on the most recent Canadian Ponzi scheme.


Article written by ,Jeffrey R. Filliter, see ACFI (Association of Canadian Forensic Investigators)


Leave a Reply

Your email address will not be published. Required fields are marked *