...The Fraud Triangle Abstract In 2002 SAS No. 99, Consideration of Fraud in a Financial Statement Audit describes the difference between material misstatements due to errors and intentional fraud and defines two types of intentional fraud: fraudulent financial reporting and misappropriation of assets. SAS No. 99 also introduced D. R. Cressey’s theory of the fraud triangle which is so named because it consists of three conditions that are generally present when fraud occurs: incentive/pressure, opportunity, and attitude/rationalization. Introduction This paper reflects on SAS No. 99 to describe the difference between material misstatements due to errors and intentional fraud which includes fraudulent financial reporting and misappropriation of assets. It also describes the fraud triangle theory proposed by D. R. Cressey. Think back to when you were in elementary school during fire safety week when the fire department would come and visit. Do you recall the fireman explaining what can be referred to as the fire triangle? That is, the description of what is necessary for fire to exist and continue. In order to create fire you need three things: fuel, oxygen, and heat. To put out (or prevent) the fire you would need to remove one of those three sides to the triangle. You could stop the fire by removing either the fuel, oxygen, or heat. This is a simple analogy for the fraud triangle. Just as there are three sides to the fire triangle there are three sides to...
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...INTRODUCTION There was large actual deficit of 12.1$ found in Violet Bay. A special grand jury investigation then uncovered numerous internal control problems that contributed to the deficit. In this memorandum, I will discuss Violet Bay School District’s control systems. I will evaluate the control system using the framework in COSO framework and identify control mechanisms. I will also address the components of the fraud triangle that were present at VBSD. EVALUATION OF CONTROL SYSTEM VBSD does not create a good control environment with commitment and ethical values well demonstrated. Otherwise, Spigot, the superintendent, acts as having a “dictatorial management style” Although, there is reporting structure established, however, neither Robertson nor Spigot conformed to it. Spigot executes the contract before the City Office’s proposal. For the Risk Assessment, VBSD has unrealistic assumptions used in preparation of the operating budget. Instead of identifying and analyzing risks, the CFO tried to ignore the risks. Furthermore, VBSD lacks control activities and communication systems. To be exact, firstly, there is no effective way to track budget and payroll expenditures. Also, VBSD needs more strict policies and procedures to execute proposal such as the large transfers. For the communication, the current reporting system is not so effective. The deficit information was not conveyed to the School Board as soon as possible. Nearly all the communication process between...
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...Worldcom Fraud Investigation Use the Fraud Triangle and Fraud Scale to critically analyse the actions of Bernie Ebbers and Scott Sullivan during the WorldCom saga/ What does your analysis suggest? Dennis Greer’s fraud triangle is a key framework in analysing the ‘factors that cause someone to commit occupational fraud’ (ACFE-The Fraud Triangle, Association of Certified Fraud, Examiners Available from:http://www.acfe.com/fraud-triangle.aspx [January 2014]). The three elements that make up the model are perceived pressure, perceived opportunity and rationalisation. In reference to the events of WorldCom, which has been labelled to date, ‘one of the biggest accounting scandals in history’ (CNN Money- WorldCom’s Financial Bomb, Available from:http://money.cnn.com/2002/06/25/news/worldcom/. [June 2002]) the initial pressures that were the driving force behind the actions of CEO, Bernie Ebbers and CFO Scott Sullivan are quite vast. Firstly Ebbers, was faced with the managerial strain of financial pressure on management due to the decline in the economic environment and the high expectations of Wall Street. As a result, he was aware that the key to growth was in acquisition and mergers, which required an illusion of a solid investment portfolio and therefore ‘a heavy dependence on the performance of WorldCom shares’ (Forbes- Bernie Ebbers Guilty, Available from: http:// www.forbes.com/2005/03/15/cx_da_0315ebbersguilty). In addition, Ebbers was fuelled...
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...Fraud triangle model is considerably suitable in analyzing the behavior of the two main individuals-Stanley Goldblum and Fred Levin-in this case. The first condition is pressure, which is the incentive and motivation for fraud commitment (Marhsall, XXX). The temptation of high stock price in order to launch stock for stock basis acquisition and receive bonuses is the main financial pressure for Goldblum and Levin to create fake policies and manipulate their firms’ financial reports. In addition, the greedy and overbearing nature also contributed to the fraud. When Levin found out the employees using computer program to create fake policies, he encouraged the programmers’ behavior instead of stopping them. The second condition of fraud triangle is opportunities. These include the failure of auditing, poor internal control and supervision of board of directors, which all have been explained in the previous paragraph. The last condition, rationalization, also played an important part in this scandal. The managers and the employees all believed what they have done were for the better development for the company and rationalize away their integrity. They all forgot they have the corporate responsibility for the stakeholders and were inconsistent with ethical principles such as honesty and respect for its customers. As for the economic aspect, American middle class had been suffering in the stagflation economy condition due to poor monetary control. The high inflation rate caused...
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... Chapter 2 Who Commits Fraud and Why I, Dennis Greer, am making this statement on my own, without threat or promises, as to my activities in regard to the activity of kiting between Bank A and Bank B. As of May 19XX, I was having extreme emotional and financial difficulties. For religious reasons, I was required without notice to move out of where I was living, and I had no place to go. Also, my grandmother—the only family member I was close to—was dying. I had to live out of my car for 3 1/2 weeks. At the end of this time, my grandmother died. She lived in Ohio. I went to the funeral and I returned with a $1,000 inheritance. I used this money to secure an apartment. The entire sum was used up for the first month’s rent, deposit, and the application fee. From that time, mid-June, until the first part of August, I was supporting myself on my minimum-wage job at the nursery. I had no furniture or a bed. I was barely making it. I was feeling very distraught over the loss of my grandmother and problems my parents and brother were having. I felt all alone. The first part of August arrived and my rent was due. I did not have the full amount to pay it. This same week, I opened a checking account at Bank B. I intended to close my Bank A account because of a lack of ATMs, branches, and misunderstanding. As I said, my rent was due and I did not know how to meet it. On an impulse, I wrote the apartment manager a check for the amount due. I did not...
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...evaluating this case using the three elements of the fraud triangle I have concluded that the potential pressures for Chris to commit fraud are greater than for others. The pressure is from Chris himself because he wants what others have or what he doesn’t have. This is due to the fact that Chris is young and impressionable may feel as though he doesn’t make enough money to obtain the material possession he desires or see others with. He may also be of the mindset that “he wants it now” it being the latest technology. This younger generation seems to feel entitlement instead of working and earn it. This may be due to their upbringing. Although my generation had things we worked for them and with our parents/families help we were able to obtain those things we wanted. We live in a technology savvy society so if you don’t have the last gadget then you may be looked upon as not having the means to acquire these things or not technologically savvy enough to want or have these items. Having the latest gadgets is a societal status symbol, the more you have…. the more you have meaning money. Chris may have friends that have the latest and greatest technology and he maybe envious of them and desire to acquire those things as well but not on his salary in his mind. So he must find a way to get either more money or a way to acquire the latest and the greatest in technology. The potential opportunities for Chris to commit fraud are great. He has access to a fake credit card which...
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...The term of “fraud triangle” was developed by Dr. Donald Cressey, a criminologist who studied embezzlers. The three basic elements of fraud triangle include perceived pressure, perceived opportunity, and the ability to rationalize. It explains the nature of many fraud offenders and also become a tool to assess the risk of fraud. It is important to companies to incorporate the fraud triangle theory in order to reduce the risk of fraud within their organization. From my standpoint, companies should incorporate the fraud triangle from the following aspects. First, companies should perform background investigation in order to uncover the perceived pressure. The factors that create pressure include personal financial pressure (high levels of debts and poor credit rating), addictions such as drugs, gambling, and lifestyle issues such as living beyond one's means. According to Bliss (2012), “auditors and fraud examiners generally consider pressure and rationalization to be internal qualities that can't be seen or assessed. Resources are focused on opportunity, which can be reduced with internal controls.” As a consequence, companies should focus more on risk prevention. They can uncover some undesirable personal traits in advance, when they are making hiring decision. If the management understands the motivation of an offender, several background checks could be useful in preventing fraud. For instance, “the civil records search can find information on any non-criminal litigation....
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...”According to the Association of Certified Fraud Examiners, public and private organizations in the United States, on average, lose about seven percent of their annual revenues to fraud” (1). This numbers has continued to grow over the past fifteen years, and with the economic turmoil and increasing fraud, the need to reduce the risk of fraud is now more important than ever. Before we can review the ways to reduce fraud, we first need to define what it actually is. As defined in our textbook, “Fraud, sometimes referred to as the fraudulent act, is an intentional deception, whether by omission or co-mission, that causes its victim to suffer an economic loss and/or the perpetrator to realize a gain”. There are three major categories of fraud. The first, assets misappropriation, is when one who is entrusted to manage the company’s assets steals from it by ways such as theft or misuse. The second is corruption, which involves the unlawful misuse or influence over a transaction to gain a personal benefit that is through unlawful and unethical means. A few examples of corruption would be bribery, embezzlement or intentional disregarding a conflict of interest. The third is financial statement fraud which involves the intentional misrepresentation of financial or non-financial information to intentionally deceive the financial statement users whom relied on such information to make material decisions. A few examples would be an Organization that was overstating revenues, understating...
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...1 A: A share Ａ股；甲类股份 abatement of tax 减税；减扣免税额 ABN AMRO Bank N.V. 荷兰银行 above-the-line expenditure 线上项目支出；经常预算 支出 above-the-line receipt 线上项目收入；经常预算收入 ABSA Asia Limited 南非联合亚洲有限公司 absolute change 绝对数值变更 absolute expenditure 实际开支 absolute guideline figure 绝对准则数字 absolute interest 绝对权益 absolute order of discharge 绝对破产解除令 absolute profit margin 绝对利润幅度 absolute value 实值；绝对值 absolutely vested interest 绝对既得权益 absorbed cost 已吸收成本；已分摊成本 absorption 吸收；分摊；合并 absorption rate 吸收率；摊配率；分摊率 ACB Finance Limited 亚洲商业财务有限公司 acceptable form of reciprocity 合理的互惠条件 acceptable rate 适当利率；适当汇率 acceptance agreement 承兑协议 acceptance for honour 参加承兑 acceptor 承兑人；接受人；受票人 acceptor for honour 参加承兑人 accident insurance 意外保险 Accident Insurance Association of Hong Kong 香港 意外保险公会 accident insurance scheme 意外保险计划 accident year basis 意外年度基准 accommodation 通融；贷款 accommodation bill 通融票据；空头票据 accommodation party 汇票代发人 account balance 帐户余额；帐户结余 account book 帐簿 account collected in advance 预收款项 account current book 往来帐簿 account of after-acquired property 事后取得的财产 报告 account of defaulter 拖欠帐目 account payable 应付帐款 account payee only [A/C payee only] 只可转帐；存入 收款人帐户 account receivable 应收帐款 account receivable report 应收帐款报表 account statement 结单；帐单；会计财务报表 account title 帐户名称；会计科目 accountant's report 会计师报告 Accountant's Report Rules 会计师报告规则 accounting and auditing procedure 会计与审计程序； 会计与核数程序 Accounting Arrangements 《会计安排》 accounting basis 会计基础 accounting by Official Receiver 破产管理署署长呈 ...
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...1 PERSEPSI MAHASISWA AKUNTANSI TERHADAP FRAUD TRIANGLE SEBAGAI PENYEBAB KECURANGAN ATAS LAPORAN KEUANGAN KHALIDA UTAMI A1C 009 077 FAKULTAS EKONOMI UNIVERSITAS MATARAM ABSTRACT The objective of this study is to examine the accounting students' perceptions of fraud triangle as a factor contributing to financial statements fraud. Fraud triangle consists of opportunity, pressure and rationalization. This study uses primary data collected from questionnaires distributed to the respondents, which are undergraduate students from class of 2008 and 2009 of Faculty of Economics, University of Mataram. Based on probability sampling technique, a total of 115 accounting students, who has attended courses in Auditing II and Auditing Practices, are accounted as sample of this study. Hypotheses analysis based on multiple regression analysis suggest that there is relationship between the fraud triangle (opportunity, pressure and rationalization) and fraudulent financial statements. The results also suggest that that accounting students have a good perception of the fraudulent financial statements. Furthermore, based on the students’ perception, the result suggests that pressures are the most likely factor to the fraud on financial statement. Keywords: fraud triangle, financial statements fraud, accounting students’ perception. 2 1. PENDAHULUAN Laporan keuangan merupakan sarana bagi perusahaan untuk menyediakan informasi bagi para pemakai (user). Sesuai dengan Konsep...
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...1. What types of people commit fraud? Studies have shown anyone can commit fraud. Fraud cannot be distinguished by people’s demographic or psychological characteristics. Fraud is committed by people who would consider themselves to be honest and got caught up in a bad situation as a result of pressure, opportunity, and rationalization. 2. What motivates people to commit fraud? The combination of perceived pressure, rationalization, and opportunity motivates people to commit fraud. The majority of frauds start small as the result of an immediate financial need. After gaining confidence in their fraudulent scheme, the fraud continues to get larger and larger until it is discovered. 3. What is the fraud triangle, and why is it important? The fraud triangle is comprised of a perceived pressure, a perceived opportunity, and rationalization. The fraud triangle is important because it provides a lens from which to analyze any fraud. Fraud is committed when all three elements of the triangle are present. 4. What is the fraud scale, and how does it relate to pressure, opportunity, and integrity? The fraud scale is the tie between the elements of the fraud triangle. The greater the opportunity or pressure, the less rationalization it takes to motivate someone to commit fraud. Less opportunity or pressure is needed when the person comitting the fraud is dishonest. 5. What are some different types of pressures? * financial pressures * vices * work-related...
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...Abstract In combination between my experiences and life learning knowledge in a discussion topic of defining forensic accounting; I will be sharing with you my life knowledge in key specific areas within the fraud examination. I will also discuss my views of what is forensic accounting and its importance of this field. In addition; I will be delving in my definition of the fraud triangle and how I would utilize it in today cases. Going forward, I will explain the importance of the fraud triangle in fraud examination cases as well as I will give an explanation on my belief of how the fraud examination has an inevitable part today and along with how it works at the same point in time. I will finalize this discussion with the requirements needed to become a forensic accountant in the present state of Florida that I reside in. Definition of Forensic Accounting Forensic, a word that ignites the search for clues to find the perpetrator 's intent and truth in a criminal case. In the topic of forensic accounting, it brought to my attention of a T.V. show that I have recently watched a few nights ago. The show was called Forensic Files on the HLN network. The particular case was about on how investigators of a police department were working on a murder case. They were working with different specialized groups of examiners, doctors and specialists to help solve how the death of a man occurred. During the investigation...
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...26, 2014 Fraud Theory and Prevention is getting a lot of attention these days, however preventing fraud and understanding fraud continues to puzzle corporations and is the focus of many studies and reasons why many internal controls are in place today. As an example Dr. Donald Cressey a fraud expert developed what is known as the Fraud Triangle Theory which essentially states that three elements must be present in order for fraud to occur and those are, Motive, Opportunity and Rationalization. This theory demonstrates how a highly regarded bank CFO committed fraud because all three critical elements were present which enabled him to embezzle $150,000. So in order to prevent fraud we must first understand how an individual such as Mr. McKinley can go from being a law abiding citizen to a white collar criminal. Therefore fraud prevention begins with understanding the Fraud Triangle, the importance of good internal controls and the role of external auditors and how they are all connected. First according to the Fraud Triangle “Motive is the reason people commit fraud…It is the driving force”. (Biegelman & Bartow, 2006, p. 32). In McKinley’s case the motive and driving force appears to have been the emotion of humiliation, after all he was a respectable church going family man, CPA and highly respected bank CFO. Therefore the driving force of protecting his image coupled with the need for money validates the first element of Dr. Cressey’s Fraud Triangle which is “motive”...
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...Week 1 Assignment Fraud occurs for a variety of different reasons, but I feel the theory that best describes those reasons is Dr. Donald Cressey’s Fraud Triangle theory. The fraud triangle provides three elements that cause individuals to commit fraud, and those three elements are financial pressures, opportunity, and rationalization. The first element, financial pressures, is typically the driving force behind law-abiding citizens turning to fraudulent activities. There are several financial pressures or motives that could cause an employee to commit fraud. Some examples of these motives or financial pressures are living beyond one’s means, debts, poor credit, drug or gambling problems, family pressure, and greed. The next element of the fraud triangle is opportunity. Opportunity is the favorable circumstance that allows fraud to occur, and the degree of opportunity depends on a couple different factors. Opportunity occurs when there is a lack of internal controls that allow employees have access to both records and the assets of the company. One example of opportunity that could lead to fraud is an employee who creates new vendor accounts, and is also responsible for paying that vendor. This could lead to false vendors being created, and provide an opportunity for the company to be defrauded for millions of dollars. Opportunity can be prevented with the implementation of strong internal controls such as segregation of duties which separates the duties of custody and recording...
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...Minkow’s stock in the company had a market value exceeding $100 million, and the total market value of ZZZZ Best surpassed $200 million." (Knapp) Less than two years later, Minkow had been exposed as a fast talking con artist who bilked his closest friends and Wall Street out of millions of dollars. Barry Minkow began serving a twenty-five-year prison sentence after being tried and convicted on fifty-seven counts of securities fraud. ZZZZ Best differed in part from a typical Ponzi scheme in that Minkow’s carpet-cleaning business was very real. "Indeed, the carpet-cleaning division won high marks for its quality." (Miller) However, its insurance restoration division, which eventually accounted for 86 percent of company revenues, was nonexistent. Minkow raised money by factoring his account receivables for work under contract, as well as floating funds through several banks in an elaborate check kiting scheme. The story of Barry Minkow is hardly an isolated case. According to the Association of Certified Fraud Examiners, "the estimated annual cost of occupational fraud to American employers is...
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