Ethics : Ethics And The Legal Ramifications Incurred

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

Fraudulent schemes are often ongoing crimes that can last for months or even years before detection. It has been identified that there are three factors that often combine to lead individuals to commit fraud: pressure or an incentive to engage in fraud, a perceived opportunity and the ability to rationalize fraudulent behavior. Because fraudulent activities are usually well planned and intentionally covered up, it is difficult for the auditor to detect these incidents. Although fraud does not happen as often as misuse and error, when it does occur, it negatively impacts organizations as well as the stakeholders. Most fraudulent schemes can be avoided with basic internal controls and effective audits and oversight; however, they remain undetected due to following factors-

Financial stress to include high medical bills, credit card debt rising, drug or gambling addictions and divorce. A few may feel neglected and underappreciated at the work place, underpaid and possibly overworked. All these pressures may motivate that person to commit fraud.

Every fraud scheme involves opportunities as it becomes the means for the perpetrators to commit the crime. Perpetrators actively pursue opportunities such as analyzing the circumstances that enable the fraud to be committed without getting caught. Pressures to commit fraud are based on various individual factors; for example, debt, status quo, or greed. The rationalization of the crimes are as demoralizing as the crimes, which relate to the pressure the perpetrator is conduced to in committing the crime. Tax fraud, divorce and bankruptcy fraud can all highly relate to the triangle fraud’s underlying factors in providing the source of the crimes that are presented in judicial court systems despite the notorious organizations or ex-love past

Fraudulent behavior is an increasingly popular choice of lifestyle that everyday affects the lives of millions, whether they are the perpetrator or the guiltless party – both expose themselves to unwarranted future lifestyles. Undisclosed bonuses and salaries demonstrate the degree of unfairness that exists behind closed doors. Today, this research paper will focus on the importance of Sarbanes-Oxley and its lasting impact aiming to protect hundreds of thousands of entry-level employees or any other type of employee facing the possibility of being a victim of fraud.

The fraud triangle suggests opportunity, pressure and rationalization must be present for fraud to occur. Unfortunately, these three factors were present for Betty Vinson at World-Com. The situation stemmed from upper management not wanting to lower expectations or disappoint Wall Street with the financial performance of the company. As a result, Vinson was told to make false accounting entries from 2000 to 2002. There was extreme pressure from upper management and Vinson complied out of fear of losing her job. Although Ms. Vinson felt the entries were wrong and did question them, she rationalized the act and failed to recognize the criminal nature of her actions.

Perceived pressure is present when financial problems which are on the rise that are unable to be solved, thus pushing commit fraud. Adding on, nonfinancial pressures involve producing better financial results than actual performance, intention to top the market / industry.

Another way to reduce the incidence of improper behavior is to remove or reduce the incentives and temptation to engage in such behavior. For instance, fraudulent financial reporting has often resulted from situations in which employees were placed under undue pressure to meet unrealistic performance goals. Inappropriate actions have been found to be more likely when management’s compensation is heavily tied to the company’s reported income. Increased temptation to commit improper acts may result from inadequate or ineffective controls, such as lack of segregation of duties or a board of directors that does not provide objective oversight of top management.

To enable fraudulent activities, three elements comprised of the fraud triangle must exist: perceived pressure, perceived opportunity, and rationalization of the fraudulent activities. In the case of Plutonium, the elements of the fraud triangle were present and several factors increased the opportunities for fraudulent activities. Though several types of fraud can be committed within an organization, the

Many cases of fraud begin when there is an image to keep up. The public perception of a company is important, especially when said company is publicly traded. When something within the company goes wrong, and the good image is threatened, that is often when the fraud comes into play. They attempt to cover up the problem by inflating revenues, evading taxes, or showing misleading information on their financial statements. Although Crazy Eddie, an electronic retail business in the 70-80’s, did employ many of these tactics as a cover-up, their fraud started almost from the beginning, just because they could.

According to Cressey’s research fraud is only committed if all three stages of the triangle exist. Therefore, there must be a perceived opportunity. This opportunity must exist for fraud to happen and the opportunity will present itself in two areas, general information of the how the business operates, it’s levels of anti-fraud protection, the area’s where opportunity may exist and technical skill. Technical skill is the second requirement; an employee who doesn’t have the expertise will not be able to commit an involved fraud, they may be able to steal money from the till but may not be able to cover up the theft.

After we commit an organizational fraud, the rationalization will often be abandoned because of the nature of us all. When we commit a first crime, it is always bothers us, but if we repeat the act several times, it becomes easier and easier. (Source is taken from: Association of Certified Fraud Examiners Manual).

The risks and rewards of corporate fraud incline many to question what some motivations of fraud are. The most evident motivating factors are certainly money and power. The corporate world offers many lucrative positions that come with generous salaries, along with these benefits come nefarious means of achieving ambitions. The fraud triangle is a well known tool created by Donald R. Cressey which helps to, “explain the reasoning behind a worker’s decision to commit workplace fraud” (HR Zone, par. 1). There are three aspects designed to break down some motivating factors for fraudulent activity. Pressure, or incentive, indicates a person must feel the need for the money they are obtaining illegally such as insufficient revenue, low stock prices, or personal expenses. Opportunity illustrates a person has the

Firstly, the factors present at WM that are indicative of the incentive or pressure to perpetrate fraud are WM paid large audit fees as well as other related fees to the external auditor AA. This incentive causes AA to treat WM as valuable client and agree to compromise with the company to commit fraud. The other factor is the strong interest of the management in employing inappropriate means to meet predetermined earnings target. Since the company’s revenue was not growing fast enough to

Studies suggest that there are four basic factors that lead to fraud. First, is the opportunity to commit fraud, second, the incentive to commit fraud, third, the rationalization of the fraudulent act and fourth, the capability to commit the fraud.