Fraud refers to the use of deception to achieve personal or material gains from other persons, institutions, or entities. Fraudulent acts affect the economy in many ways including raising the value of goods and services, reducing the quality of goods and services, and sometimes causing medical harm to users of a specific good because of the fraudulent procedures used in its production. In other instances, fraudulent activities or behavior influences one’s choice of scarce goods and services. The trade-off between the acquisition of one good and foregoing the other may also be influenced by fraud in such a way that a lower quality and low priced good may be preferred for a better quality (Rezaee & Taylor, 2002). When analyzed, the opportunity cost of acquiring one good and foregoing the other increases when fraudulent activities are involved. Based on this brief overview, the paper seeks to analyze the effects of fraud on the business, on the society and on health.
Effects of fraud on business
The 2012 reports released by the Association of Certified Fraud Examiners revealed that most firms across the globe lose close to 5% of the annual revenue to fraudulent activities (Yoe, 2012). Furthermore, smaller firms are more susceptible to fraudulent activities as opposed to large firms. However, small and large firms incur financial losses caused by fraudulent activities. Businesses lose funds that could have been used to expand the operations, employ more labor force, or acquire production inputs (Yoe, 2012). Assuming the firm produces capital and consumer goods and at some point in time, when fraudulent activities take place, due to scarce financial resources, this firm may have to trade-off and make choices whether to produce capital or consumer goods. Whichever the decision the firm will take, it has to incur an increased opportunity cost compared to a time when fraudulent activities had not taken place to the firm.
Production possibility frontier
B A C
Considering that before the fraud, the business was producing on the indifference curve A, after detecting fraud, the business management noticed that it has suffered a major financial loss and therefore, it has scarce financial resources. In this case, it has to trade-off and incurs an opportunity cost of producing at a lower indifference curve or produces more of consumer goods than capital goods, which require higher capital investments. If the business could not have incurred the financial loss, it could have expanded its operations and shifted to a higher indifference curve C. The Business may suffer a productivity problem in which workers may be spending much time figuring out ways of committing fraud or sealing fraud evidence thereby fail to commit themselves to productive activities. In such cases, if a worker used to produce 1 units of a capital good and 3units of a consumer good per hour, then spending two hours committing fraud may reduce the number of total units the worker may have produced.
When a business becomes a victim or a perpetrator of fraud, it losses confidence with other external business partners and in such a case, the business may fail to forge alliances with others, it may fail to get credit or pay a higher amount for the credit because of the tainted name. In other occasions, the business may be blocked from registering with trade associations (Dempsey, 2008). It should be noted that such external relationships with other firms are important to the business and once the business fail to establish itself with them, and then its sustainability in the market might be affected. Workers of such a business may fail to secure employment opportunities in other organizations because of the association their previous business had with fraudulent activities.
Effects of fraud on the society
The society comprise of individuals who live together and bound together by societal values, culture and traditions. The society is a social identity allows its members to be recognized by external members based on values guiding it. Fraudulent behavior in a social setting affects the society in various ways. In the first place, other members of the society fail to recognize themselves with a social setting that suffered a fraudulent activity. For instance, any common fraudulent behavior in the society of accountants may mean that all accountants share the same unlawful values (Russett & Starr, 2012). In most cases, it is hard to prove fraudulent cases in court especially if they are insurance fraud, online fraud, or any other form of white-collar fraudulent activities. The society perceives victims with skepticism and such disbelieve lowers the self-esteem of an individual and hence that of the whole society. It is important to note that members of the society support societal values; the social indifference of a few members can easily change societal values and culture thereby influencing the behavior of future generations.
Effects of Fraud on health
In the health sector, fraudulent activities usually harm human health or human kind in a way or the other. In 2012, the National Health Care Anti-Fraud Association reported that $2.27 trillion was used in healthcare (Ekelund & Tollison, 2012). Of this this, approximately, four billion was spend on financing insurance claims. The majority of the claims filed were fraudulently done through non-existent health information. It should be noted that, fraud in the health sector increases the opportunity cost of spending that same funds in another beneficial health programs, plan, or activity. For instance, filing health insurance claims worth three billion, which does not exist reduces the opportunity of genuine patients to filing the claims and being compensated. The insurer may delay payment or end up not paying genuine patients, a move that may make them succumb to their illnesses. Fraud in the health sector has an impact of increasing health insurance premiums for patients thereby making the access of healthcare to be different. In other instances, fraud in the health sector makes health managers to trade-off the kind of health equipment they should purchase because of the limited funds they have. Such a situation reduces the quality of healthcare services patients access and in that case, mortality rates are bound to increase.
Many human consumable goods or services require health approval from regulators to ensure that finished products are of good standard to be consumed. However, some of the producers of such goods or regulators may involve in fraudulent activities and affect the quality of health standards of consumer goods and services. In the economic environment, acquisition of some production inputs is sometimes hard because of their expensive nature and availability becomes a problem at times, especially when the chain of distribution is short. In such a case, for instance, producers manufacturing pills or toys may opt to bypass a production process (purification process for example) because some of the inputs required (to remove impurities) for that process may be expensive or scarce. After the production process, the regulator may be approached and be bribed to approve the product. The health effects such a product may have to consumers may cause detrimental effects to their health. For instance, in the long run, consumers may be barren develop terminal illnesses that may be costly to treat. Manufacturing automobile equipment such as car breaks require genuine products, any attempts by the manufacturer to trade-off one input for another may causes health effects to the user. For instance, a brake with fake products may make the car user to damage his car and even harm him while driving. The producer may do this for some unlawful gains, but at the end, his fraudulent behavior may cause severe health effects to the car user.
Fraud is an unlawful way of getting material gains from a given activity, project, or program. Fraudulent activities increases the opportunity cost of acquiring a good or service at the same time foregoing another. Fraudsters usually make businesses to engage in many trade-offs for the purpose of maximizing the little resources left suffering the economic loss caused by fraud. Fraudulent activities have a major impact on businesses because they render the operations of some businesses difficult because of the rejection a business experiences after being a victim or perpetrator of fraud. To the society, fraud distorts societal values, which shapes people’s behavior and in extreme cases, a single fraudulent member of the society poses a socio-cultural impact on the entire society. In the health sector, fraudulent activities allow producers to use low standard or unapproved inputs that affect the health of users.
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