Why People commit fraud
Fraud Triangle:
- Perceived pressure
- Rationalization
- Perceived opportunity
For accidental fraudster all three legs of the triangle needs to be present. Considered to be a good person who makes good decisions.
Do not inflict you value system when trying to understand why other commit fraud.
When learning of the fraud act, people that know the Accidental fraudster are surprised.
FRAUDSTER DEMOGRAPHICS
Male 36-45 years old.
Often married with children
Well educated
Accountant upper management or executive
With company 5 years or more
First time offender
Trusted
M-I-C-E
Money (desire for expenses)
Ideology (are not treated fairly)
Coercion
Ego
BEHAVIORAL RED FLAGS
Most common characteristics:
LIVING BEYOND MEANS
FINANCIAL DIFFICULTIES
UNUSUALLY CLOSE ASSOCIATION WITH VENDOR OR CUSTOMER
CONTROL ISSUES, UNWILLIGNESS TO SHARE DUTIES
DIVORCE / FAMILY PROBLEMS
WHEELER-DEALER ATTITUDE
IRRITABILITY, SUSPICIOUSNESS, OR DEFENSIVENESS
ADDICTION PROBLEMS
PAST EMPLOYMENT RELATED PROBLEMS
COMPLAINED ABOUT INADEQUATE PAY
REFUSAL TO TAKE VACATIONS
EXCESSIVE PRESSURE FROM WITHIN ORGANIZATION
PAST LEGAL PROBLEMS
COMPLAINED ABOUT LACK OF AUTHORITY
EXCESSIVE FAMILY / PEER PRESSURE FOR SUCCESS
INSTABILITY IN LIFE CIRCUMSTANCES
People who commit fraud dont think like us.
Consider each piece of data individually.
Keep digging until you have an explanation
The investigation requires.
Technical knodlegde
Critical thinking
Investigative proficiency
PREDATOR FRAUDSTER
They are on the hunt in the organization, activelly looking to commit frauds.
Accidental fraudsters can become predators.
Predatory fraudsters can be patient. Very few frauds happen in the first year of employment.
For this type, pressure and rationalization are not neccesary.
Predators are:
- Organized
- Capable
- Prepared for auditors
FRAUD SCALE (Albrecht et al 1984)
Criterias: Pressure, opportunity and integrity
Personal integrity affects the probability that an individual will rationalize in the proper way.
CRESSEY FRAUD TRIANGLE
- Opportunity
- Rationalization
- Financial Pressure
FRAUD DIAMOND (Wolfe and Hermansson 2004)
- Opportunity
- Rationalization
- Financial pressure
- Capability: Personal traits and habilities
ESSENTIAL TRAITS OF FRAUDSTER:
Intelligence
Position
Ego
Hability to deal with stress
CHARACTERISTICS OF A CRIME
ACT
CONVERSION
CONCEALMENT
META MODEL (Dorminey et al)
The fraud triangle as the pre-fraud state.
The crime characteristics as the post-fraud state.
The organizational interventions are the actions that can mitigate the risk (such as corporate governance, internal controls). Elements are deterrence, prevention and perception of detection).
INTERNAL CONTROL CONCEPTS
PREVENTIVE CONTROLS
DETECTIVE CONTROLS Discover problems that have ocurred
CORRECTIVE CONTROLS Resolve problems that have ocurred
FOREING CORRUPT PRACTICES ACT
SARBANES OXLEYS ACT
SEGREGATION OF DUTIES is the most important of controls.
Authorizing
Executing
Record
Safeguarding
INFORMATION ABOUT THIS TOPICS
www.be.wvu.edu/fafe
CASES
Crazy Eddy
Fraud Triangle:
- Perceived pressure
- Rationalization
- Perceived opportunity
For accidental fraudster all three legs of the triangle needs to be present. Considered to be a good person who makes good decisions.
Do not inflict you value system when trying to understand why other commit fraud.
When learning of the fraud act, people that know the Accidental fraudster are surprised.
FRAUDSTER DEMOGRAPHICS
Male 36-45 years old.
Often married with children
Well educated
Accountant upper management or executive
With company 5 years or more
First time offender
Trusted
M-I-C-E
Money (desire for expenses)
Ideology (are not treated fairly)
Coercion
Ego
BEHAVIORAL RED FLAGS
Most common characteristics:
LIVING BEYOND MEANS
FINANCIAL DIFFICULTIES
UNUSUALLY CLOSE ASSOCIATION WITH VENDOR OR CUSTOMER
CONTROL ISSUES, UNWILLIGNESS TO SHARE DUTIES
DIVORCE / FAMILY PROBLEMS
WHEELER-DEALER ATTITUDE
IRRITABILITY, SUSPICIOUSNESS, OR DEFENSIVENESS
ADDICTION PROBLEMS
PAST EMPLOYMENT RELATED PROBLEMS
COMPLAINED ABOUT INADEQUATE PAY
REFUSAL TO TAKE VACATIONS
EXCESSIVE PRESSURE FROM WITHIN ORGANIZATION
PAST LEGAL PROBLEMS
COMPLAINED ABOUT LACK OF AUTHORITY
EXCESSIVE FAMILY / PEER PRESSURE FOR SUCCESS
INSTABILITY IN LIFE CIRCUMSTANCES
People who commit fraud dont think like us.
Consider each piece of data individually.
Keep digging until you have an explanation
The investigation requires.
Technical knodlegde
Critical thinking
Investigative proficiency
PREDATOR FRAUDSTER
They are on the hunt in the organization, activelly looking to commit frauds.
Accidental fraudsters can become predators.
Predatory fraudsters can be patient. Very few frauds happen in the first year of employment.
For this type, pressure and rationalization are not neccesary.
Predators are:
- Organized
- Capable
- Prepared for auditors
FRAUD SCALE (Albrecht et al 1984)
Criterias: Pressure, opportunity and integrity
Personal integrity affects the probability that an individual will rationalize in the proper way.
CRESSEY FRAUD TRIANGLE
- Opportunity
- Rationalization
- Financial Pressure
FRAUD DIAMOND (Wolfe and Hermansson 2004)
- Opportunity
- Rationalization
- Financial pressure
- Capability: Personal traits and habilities
ESSENTIAL TRAITS OF FRAUDSTER:
Intelligence
Position
Ego
Hability to deal with stress
CHARACTERISTICS OF A CRIME
ACT
CONVERSION
CONCEALMENT
META MODEL (Dorminey et al)
The fraud triangle as the pre-fraud state.
The crime characteristics as the post-fraud state.
The organizational interventions are the actions that can mitigate the risk (such as corporate governance, internal controls). Elements are deterrence, prevention and perception of detection).
INTERNAL CONTROL CONCEPTS
PREVENTIVE CONTROLS
DETECTIVE CONTROLS Discover problems that have ocurred
CORRECTIVE CONTROLS Resolve problems that have ocurred
FOREING CORRUPT PRACTICES ACT
SARBANES OXLEYS ACT
SEGREGATION OF DUTIES is the most important of controls.
Authorizing
Executing
Record
Safeguarding
INFORMATION ABOUT THIS TOPICS
www.be.wvu.edu/fafe
CASES
Crazy Eddy
