Final answer:
Most frauds start small and, if not detected, continue to get larger due to factors such as increased confidence and lack of early consequence. Example scenarios with Firm A and Firm B illustrate the potential progression and impact of undetected fraud, emphasizing the importance of early detection in preventing larger fraudulent activities.
Step-by-step explanation:
Most frauds start small and if not detected, continue to get larger. This is often due to the concept known as the 'fraud triangle,' which includes three elements that contribute to fraudulent behavior: pressure, opportunity, and rationalization. When an individual or a company begins with a small fraud, and it goes undetected, they may feel emboldened to continue their deceptive practices, leading to larger and more significant fraud over time.
In the case of Firm A and Firm B, if neither firm cheats, Firm A earns $1000. However, if Firm A cheats and Firm B does not detect it, Firm A could see a small gain. On the other hand, if Firm B cheats and is detected, they could lose a substantial portion of their gains. These scenarios demonstrate the potential escalation of fraudulent behavior in response to perceived gains and the risks of detection, highlighting a broader principle that most frauds grow when they are not addressed early on.
Understanding the progression of fraudulent behavior is essential for detection and prevention strategies. Systems should be put in place to detect small discrepancies early to prevent larger instances of fraud. This becomes increasingly important in businesses or research, where the cost of undetected fraud can have significant financial and reputational repercussions.