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Fraud Detectioand Deterence

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Submitted By mkennedyjr19
Words 757
Pages 4
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. This is just one internal control that companies can implement to prevent fraud from occurring. The third and final element of the fraud triangle is rationalization. Rationalization is the reasoning behind the fraud, and convinces the fraudster that they are doing what is right. Many fraudsters rationalize by convincing themselves they are only borrowing the money and are going to pay it

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