Why Fraud Is The Most Common Reason?

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

Professional auditing standards discuss the three key “conditions” that are typically present when a financial fraud occurs and identify a lengthy list of “fraud risk factors.”

Fraudulent financial reporting is one form of corporate corruption and may involve the manipulation of the documents used to record accounting transactions, the misrepresentation of accounting events or transactions, or the intentional misapplication of Generally Accepted Accounting Principles (GAAP) (Crumbley, Heitger, and Smith, 2013). Examples of fraudulent schemes befitting of this category abound and usually involve financial statement items that have been misclassified, omitted, overstated, undervalued, or prematurely recognized. One case involving CEO Bill Smith of Moonstay

(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.

2. Misappropriation of assets – where high level personnel utilize illegal schemes to benefit self by the use of cooking financial records, embezzlement, and theft of employee’s retirement accounts.

A study conducted by the Association of Certified Fraud Examiners (ACFE) surveyed 959 cases of reported occupational fraud between 2006 and 2008. The report broke fraud into three categories: fraudulent statements, asset misappropriation, and corruption. Ninety-nine of the 959 cases reported financial statement fraud with a median loss of two million dollars, making it the most costly of the fraud categories. In general, the study found that publicly traded companies that had implemented SOX controls reported fewer losses (70 to 96 percent) than those who had not implemented SOX controls. These results imply that implementation of SOX controls are directly related to a reduction in theft and other fraudulent behaviors. Surprisingly, it was noticed that in companies where management must certify the financial statements, fraud took approximately three months longer to detect than in those companies where management was not required to certify the financial statements. However, due to the complexity and relative newness of SOX and the complexity of the businesses and the ingenuity of people, it is not surprising that SOX has not been a booming success. Hopefully, over time, all the wrinkles will be ironed out allowing for deterrence or immediate detection to be attainable. (Rappeport,

Employee fraud often takes place when pressure (motivation), opportunity and rationalism are present. In fact, employee perception where failure to meet sales target might leave them unemployed and unable to settle bills for their family (Kelly, 2016). Furthermore, watching other co-worker committing fraud will most likely influence the employee to do the same because their mindset tends to persuade themselves that it is one of a way to meet their quota plus “everyone is doing it.”

Fraud is defined as an intentional deception, false statement or misrepresentation made by a person with the knowledge that the deception could result in unauthorized benefit to oneself or another person. It includes any act that constitutes fraud under applicable federal or state law. The Association of Certified Fraud Examiners (ACFE) reported in 2010 that they estimated the annual cost of fraud approaching 5% of an organization's revenues ($2.9 trillion worldwide). An example of an industry that has ongoing problems with fraud, is the healthcare industry. Since the 1960’s health care costs have risen from 28 billion dollars per year to an estimated 1.9 trillion dollars per year in 2004 (Snapshot, 2006). That rise in cost accounts for an average of 6,300 dollars per person per year spent on health care, compared to 3,600 dollars per person per year in 1994 (Snapshot, 2006). This paper will examine the current status of the healthcare industry, who commits fraud, types of fraud and recommendations for organizational leaders to put in place.

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:

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.

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.

According to ACFE it defines occupational fraud as the use of one’s occupation for a person enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets. There are two board categories of frauds that are perpetrated against not for profit organizations (internal and external). Internal frauds are committed by persons inside of the organization like the employee. External frauds are committed by

• Pressure which is the driving forces behind a fraud committed. It is the circumstances that motivate an individual to commit fraud. There are many reasons that motivate fraud in an organization, but financial pressure is often the most common reason.

The fraud has two different kinds, un-management fraud and management fraud. The un-management means individual fraud is the company’s employee use the defect of the management, illegal to get assets from the company, it has some ways to get the assets, forged documents, complicity or collusion with others. It commonly the employees use their duties to make some profit for themselves from the company. When the company loss internal control, the individual can commit the fraud, this is dishonest. The defect of the internal control is the circumstance for these individual fraud. The company has this background, even

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.