Three conditions are generally present when fraud occurs: a pressure, an opportu

Question

Three conditions are generally present when fraud occurs: a pressure, an opportunity and a rationalization. They are frequently referred to as the fraud triangle. Describe the pressures that can lead to employee fraud including financial, emotional and lifestyle pressures. Also describe the opportunities that allow an individual or organization to commit, conceal and convert the misrepresentation or theft for personal gain and describe the rationalizations that allow the perpetrators to justify their illegal behavior. Finally, describe how a good system of internal controls represents the greatest opportunity to reduce or minimize fraud.

Explanation / Answer

three categories of factors that may be interrelated: Pressures and Incentives, Opportunities, and Attitudes and Rationalizations ============================================================================================================================== Pressure:The first leg of the fraud triangle represents pressure, or what Cressey called a perceived non-sharable financial need. This is what motivates the crime in the first place. ==================================================================================================================================== The fraudster has some financial problem that he is unable to solve through legitimate means, so he begins to consider committing an illegal act such as stealing cash or falsifying a financial statement as a way to solve his problem. The financial problem can be personal (too deep in personal debt) or professional . ======================================================================================================================================== Examples of pressures that commonly lead to fraud include: Inability to pay one's bills ,Drug or gambling addiction Need to meet earnings to sustain investor confidence ,Need to meet productivity targets at work Desire for status symbols such as a bigger house, nicer car, etc. ============================================================================================================================================================================================================================================================ Opportunity; The second leg of the fraud triangle is opportunity, sometimes referred to as perceived opportunity, which defines the method by which the crime can be committed. ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------The person must see some way she can use (abuse) her position of trust to solve her financial problem with a low perceived risk of getting caught. It is also critical that the fraudster be able to solve her problem in secret. ==============================================================================================================================fraudsters are motivated by concerns over status. If a perpetrator is caught embezzling or falsifying financial information, this will hurt her status at least as much as the underlying problem she was trying to conceal. =============================================================================================================================So the fraudster not only has to be able to steal funds, she has to be able to do it in such a way that she will likely not be caught and the crime itself will not be detected. ========================================================================================================================================================================================================= Rationalization;The third leg of the fraud triangle is rationalization. As we stated already, the vast majority of fraudsters are first-time offenders with no criminal past. ================================================================================================================================= They do not view themselves as criminals. They see themselves as ordinary, honest people who are caught in a bad set of circumstances. Because the fraudster does not see himself as a criminal, he must justify the crime to himself in a way that makes it an acceptable or justifiable act. This is known as rationalization. =========================================================================================================================================== rationalizations include the following:I was only borrowing the money ;I was entitled to the money ,I had to steal to provide for my family ;I was underpaid/my employer had cheated me ;My employer is dishonest to others and deserved to be fleeced

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