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Fraud

Over the few weeks of the course we have discussed over many types of asset misappropriations and began to look at financial statement frauds. The one that appeared most fascinating to me was fraudulent disbursements of cash misappropriation.   Of all the different types of fraudulent disbursements, I felt extremely shocked reading over billing schemes. Money obtained from billing frauds required intense labor and time to cover up trails. Although the clean up could be perfect, it doesn’t matter how spotless the cleaning was completed, evidence of a billing fraud was always in the company’s record. This was surprising to me because people actually avoid getting caught for billing schemes for a long period of time. It should not last more than a year if employees reviewed documents critically. Many simple controls or actions could be implemented to prevent fraud will arise when we come across previous incidents.
Before we go in detail, we need to make clear “why does fraudulent activity happen in the first place”? A researcher, Donald Cressy, worked with embezzlers to come up with the hypothesis of the fraud triangle. The triangle consists of pressure, rationalization, and opportunity. The absence of any of these three attributes will result to the absence of fraud. Pressure is what he described as a non-sharable problem (financial burden, problems from personal failure, status gain, etc…). When pressure is applied to an individual he or she begins to realize that they could use their company position to get out of their problem. Most of the perpetrators are morally driven individuals, so an internal conflict begins to surface. The individual further rationalizes and convince their moral intuition that it is not wrong. Often they rationalize by intending it to be temporary, paying it back, or claiming they don’t have control over the situation. With these two factors present, they only need the opportunity to successfully commit the fraud. A company has limited...