Fraud is any act that relies on deception for illegal or unfair gain. It’s typically associated with white-collar crime and involves false statements or deceitful conduct. Criminals commit fraud for a variety of reasons, including money, greed, coercion, or simply not knowing how to properly manage a business or account.

Understanding how fraud works is essential to identifying and preventing it. But because fraudsters are so agile and innovative, it can feel like it’s nearly impossible to fight them. However, there are some patterns that can make it easier to identify and prevent fraud.

One of the most common types of fraud is investment fraud, which can include a number of different crimes like Ponzi schemes, advance-fee scams, foreign currency fraud, and pump-and-dump schemes. These crimes are often characterized by a scheme to dupe investors through misrepresentation and take advantage of information asymmetry.

Other types of fraud are identity theft, mortgage fraud, insurance fraud, lottery or sweepstakes fraud, and credit card fraud. These are generally characterized by fraudsters posing as legitimate representatives of a company or government agency to steal personal information or financial assets.

Lastly, there is also fraud at the organizational level that can involve embezzlement, procurement or contract fraud, financial statement fraud, bribery, insider trading, and cyber fraud. Many of these types of fraud can be categorized as either internal or external, and may include collusion between insiders and outsiders. Whether it’s an internal or external risk, fraud detection is critical to ensure proper compliance and mitigate a firm’s risk exposure.