The Fraud Triangle Theory By Donald Cressey

Fraud is defined as the intentional deception or misrepresentation of facts that can result in unauthorized benefit or payment. Abuse is

Appendix A.2 also lists several factors that could provide opportunities for management/employees to commit fraud. One factor that could lead to fraud is if, “There is ineffective monitoring of management as a result of: domination of management by a single person or small group without compensating controls.” The auditors should have taken notice of the lack of controls and segregation of duties with respect to Phar-Mor’s

1. The three aspects of fraud - Perceived pressure, Rationalization, and Opportunity were present in the CIT case as follows:

In today's day and age sales workers are taught to lie and cheat to get a good price. Also studies show, greed is closely related to envy, they’re the evil step sisters of life. That same study shows, almost everyone in today’s society show traces of greed. Greed has an impact of destruction of relationships, and most times leads to loneliness. Greed seems to be a common motive of fraud. Fraud is the “wrongful or criminal deception intended to result in financial or personal gain”. Also executives of big companies have a goal to rip you off, to make the maximum amount of money

It is important to first gain an understanding of the various types of fraud, in order to aid understanding in regards to the prevention of fraudulent activity. This paper begins with a review of the definition of financial fraud, and identification of the different fraud types. Further, included is an examination of what motivates individuals to commit fraud, including an identification of some of the method in which people commit fraud. A discussion of the importance of the fraud triangle, and how rationalization contributes to fraud is a key area of focus. Finally, there is an examination of some controls that prevent and detect fraudulent behavior, including the value and importance of understanding the nature of fraud for

Committing fraud requires motivation from perceived pressures like greed or meeting expectations. With the shift in investor focus and the need to meet analyst expectations, Scrushy and the “family” manipulated earnings to make HealthSouth appear more successful. Perceived opportunity establishes how an individual’s position enables fraud to be committed and

The manipulation of accounts fraud scheme is generally fulfilled by employees in top management positions and it usually involves making understatements or overstatements on financial statements making it very hard to detect. The process followed as Troy Adkins, (2015) explains is very simple. The financial statements are either overstated to show different figures in the earnings on the income statements making them look better than they actually are or the earnings in the current periods are manipulated in such a way that the revenue is understated or they inflate the current year’s expenses. The second process includes making the financial statements look worse than they are in reality. Deloitte, (2009) explains a number of ways which the accounts are manipulated where as one of the ways is to manipulate the reported earnings directly. They further explained that overstating the

As we drill down into the world of identity theft a little deeper, the Association of Certified Fraud Examiners (ACFE) uses Cressey’s, “Fraud Triangle”, to assist in explaining fraud and how it can be applied to identity theft as there are three (3) factors in the triangle: Pressure, Opportunity, and Rationalization. (ACFE). In the pressure stage, this is usually the motivation of the crime. In the Opportunity stage, the would be criminal has an open window if you will to gain the vital information of the victim. In the final stage of rationalization, the would be criminal now transforms themselves into a modern day Robin Hood where they steal from the victims and give to the poor or in this case; the greedy.

Some industry-specific factors, such as having valuable near-cash assets, can increase the organization's vulnerability. Also they will need to rationalize the actions as justifiable. The individuals committing the fraud must first convince themselves that their behavior is acceptable or will be temporary. For example, Barry Minkow’s believed that the lies and deceit are for the betterment of his company and that with time everything will eventually return to normal.

Perceived opportunity is one of the key players in this triangle. This could be in the form of having superuser responsibilities, access to financial statements, and breakdown in internal control systems. Looking at the case of one Mrs. Smith (Wells, 1990), a bookkeeper for a Midwestern lighting company who needed to help her children financially and began forging checks. She had control over the reconciliation of the account and simply destroyed the cheques when they were returned from the bank. She added the costs of the thefts to inventory. She managed to steal over $400,000 dollars over the span of four years until she had a nervous from the burden of trying to cover up her stealing. Thus From the standpoint of an organization, the

The second part is opportunity. The opportunity to commit fraud usually arises through weak internal controls.

“The first leg of the fraud triangle represents pressure. This is what motivates the crime in the first place. The individual

Fraud may also be through counterfeit which involves imitation of products and services of another business with the intent to deceive potential consumers from purchasing the products and services. Infringement in patent and trademarks is also a form of fraud. The very nature of fraud is deception which is an unfair practice in business. The moral analysis of this action from the virtue ethics theory is contrary to the virtue of justice that ensures equity and fairness among all people. The end of fraud is quick short-term profits with heavy moral costs of dishonesty and lack of

If I suspected fraudulent activity within n organization where I work, I would use a professional skepticism approach. This can be broken down into there attributes:

Over the past two years, corporate America has endured a plethora of fraudulent acts committed by those of high status within their respective corporations, most of which involve internal fraud. Internal fraud has two main aspects, misappropriation of assets and fraudulent financial reporting, with the focus of this discussion lying within the former. Misappropriation of assets is defined as fraud for personal gain. It is the most common type of fraud found among employees and frequently includes theft of cash and inventory.