Question

in your word, to discussion Steinhoff International

financial fraud by using the fraud triangle (150 words)

Answer 1

The term fraud triangle was first coined by American sociologist Donald R. Cressey. American criminologist Donald Cressey developed a theory – known as the Fraud Triangle – that explains the factors that lead to fraud and other unethical behavior. When businesses and organizations understand the Fraud Triangle, they can more effectively combat criminal behavior that negatively impacts their operations.

UNDERSTANDING THE FRAUD TRIANGLE

The three factors that make up the fraud triangle are:

1. Pressure. Most individuals require some form of pressure to commit a criminal act. Pressures can include money problems, gambling debts, alcohol or drug addiction, overwhelming medical bills. “The company has not been paying me what I am really worth,” for instance.
2. Opportunity. In the case of fraud, usually a temporary situation arises where there is a chance to commit the act without a high chance of being caught. Companies that are not actively working to prevent fraud can present repeated opportunities to individuals who meet all three criteria of the fraud triangle.
3. Rationalization. The mindset of a person about to commit an unethical act is one of rationalization. The individual manages to justify what he or she is about to do.

STEINHOFF INTERNATIONAL FINANCIAL FRAUD :

Steinhoff traces its roots to West Germany. It has 130,000 employees at 12,000 outlets in over 30 countries. Between June 2014 and September 2016 Steinhoff expanded its assets by 145% as its acquisition spree intensified. This splurge added to its financial complexity and might have helped it to hide bad news. A recent report by Viceroy Research, which hunts for stocks to sell short, or bet against, accuses Steinhoff of using off-balance-sheet vehicles to inflate profits and mask losses. Viceroy’s analysts concluded that these vehicles were controlled by associates and former executives of Steinhoff, and that they engaged in transactions with Steinhoff that the firm failed to disclose. They also allege that Steinhoff made loans to these entities, allowing it to book interest revenue that was never likely to be translated into cash. This, they argue, went hand in hand with “round-tripping”, in which large blocks of business were moved off the books and only the profitable bits were then brought back on. The firm has not commented in detail on the analysis, though it has denied impropriety.