The New Fraud Triangle Model

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

Not to our surprise, the employee would almost always choose their economic stability over their integrity. It is still not easy to say that the employee’s conscious didn’t warn them of the risks, the first time. It begins with just a simple upgrade tune up and then trickles to $1,000 in new auto parts. If we look back at the Sear’s auto mechanic example, a mechanic could easily convince the customer that their car needed a whole new system because of the customer’s lack of knowledge of the subject. The customer automatically assumes there is a guaranteed trust commitment to their service, but in turn gets fooled. The evidence unearthed by investigators found nearly identical reports of cheating at one Sears auto repair shop after another.

In the past few years, enterprise integrity has come up on a regular subject of conversation. In the past ten years only, we have seen numerous situations associated with collaborative scams which have shaken the people 's trust in businesses and also the general economic climate. A few of the many salient frauds are the WorldCom and Enron 's scams, the ponzi scheme perpetrated by Bernard Madoff 's, the latest accusations of Goldman Sachs tricking option traders to guarantee the company 's personal profit. Incidents such as these designed us all, as upcoming corporation professionals as well as market leaders, think about ethics and its particular function in the commercial world (Gross, 2010.)

(TCO 5) Fraud is an intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party. In our readings and discussions we have seen several examples of fraud in business. Using that experience (1) provide an example of a common fraudulent practice in business with an explanation of how the practice works and (2) name and describe each of the elements of the Fraud Triangle.

Internal fraud consists in “a type of fraud that is committed by an individual against an organization. [Furthermore], a perpetrator of fraud engages in activities that are designed to defraud, misappropriate property, or circumvent the regulations, law, or policies of a company”[8]. Not only has the incidence of internal fraud increased in frequency because of the availability of sensitive information such as client details or confidential business documents; moreover, this type of fraud is found in various types of organizations, ranging from corporations, public service institutions and financial institutions. Our analysis will concentrate on the most common and prolific types of internal fraud, namely identity theft, insider trading, loan fraud and wire fraud. Interestingly, PriceWaterhouseCooper conducted a survey that revealed that the “demographics of a typical fraudster are as follows: males (85% of cases), 31-50 years (72% of cases), reached high-school level (50%), Bachelor’s or post graduate degree (50%) and middle or senior management (52%)”[9].

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

Fraud deterrence occurs in several stages, and the key is to know that prevention is not to same as deterrence. First is the impact of controls

Most word references characterize fraud as a bogus representation of true data. Whether that false data is given by expressing false words, deluding claims, or by concealing or disguising uncovered data, it is viewed as fraudulent because of the beguiling nature. In spite of the fact that it is deceptive to give false data, people even in real companies will attempt to cover their misfortunes by reporting false data. Taking after many years of monetary frauds and outrages including executives and officers at a portion of the biggest organizations in the United States, Congress established the Sarbanes-Oxley Act of 2002 (Cheeseman, 2013). Congress ordered the Sarbanes-Oxley Act of 2002 (SOX Act) to shield customers from the fraudulent exercises of significant partnerships. This paper will give a brief history of the SOX Act, portray how it will shield general society from fraud inside of partnerships, and give a presumption to the viability of the capacity of the demonstration to shield purchasers from future frauds.

Fraud is an issue that causes major scandals, although it is a very ancient scheme. Recent fraud events gave light to gaps that facilitated its events. Its extent was drastic by affecting financial markets that eventually trickled into global markets. Major organizations and countries worked cohesively and continue to address the gaps and, in effect, implemented strict compliance regulations to diminish and refrain fraudulent activities. Strict compliance regulations are examples of a fraud response plan the small family business could have implemented to refrain the perpetrators from fraudulent incidents, protect organizational assets and the organization’s going concern.

When an employee reaches a level of trust with their company and the controls of that company is weak, the employee may assume this is an opportunity to commit the crime and avoid detection.

According to Daniel F. Dooley (2008), a member of the Commercial Fraud Taskforce, financial fraud with private middle-market companies is on the rise. In fact, Mr. Dooley believes that he has seen more instances of fraud in the past two years than in the previous ten. He notes seven areas in which financial fraud has increased over the past few years:

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.

Albrecht, Steve W. 2014. Fraud Magazine. Iconic Fraud Triangle Endures: Metaphor Diagram Helps Everybody Understand Fraud. Accessed at the Fraud Magazine’s website (March 6, 2014): http://www.fraud-magazine.com/article.aspx?id=4294983342

Fraud is defined as a deliberate misrepresentation that causes a person or business to suffer damages, often in the form of monetary losses through deception or concealment. And Occupational Fraud as defined by the ACFE is the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. Traditional fraud triangle theory by Donald Cressey explains that propensity of fraud occurring in an organization lies on three critical elements which are Pressure, Opportunity, and Rationalization.

Among the nine factors of the perfect fraud storm; the economy, incentives, and expectations all fulfilled the three elements of the fraud triangle providing the necessary motivation for management to succumb to