Question

Please answer the following question:

1) Based upon the knowledge relating to fraud examination and the fraud triangle, “Understand the Person, Understand the Fraud” concept, means to you.

2) Discuss how you, a fraud examiner, would approach and conduct an interview of a fraud suspect(s) in a case you have been assigned. Remember to include techniques, theory and approaches in your answer. Make sure your answer demonstrates your understanding of the fraud triangle and fraud examination.

Answer 1

1) The fraud triangle is made up of three parts – pressure, rationalisation and opportunity. The theory of the fraud triangle was created by American criminologist Donald Cressey to explain what leads people to fraud or unethical behaviour. If organisations can understand the reasoning behind criminal or unethical acts, then they will be able to work more effectively against acts which will negatively affect their organisation.

on the basis of three elements of the fraud triangle the concept of 'Understnad the Person , Understand the Fraud' is described below:

Pressure – People don’t usually commit fraud simply for the hell of it. There is usually some pressure behind it that in effect, forces people’s hand. This could be financial pressure. For example, they may have lots of debts, a gambling, drug or alcohol habit or be under pressure from partners to achieve a certain lifestyle or monetary income. It could also be emotional pressure from family members or friends and a fraudulent act almost becomes a pressure release valve for them. In addition, the pressure they are under might seem odd or downright bizarre to an outsider but it will be present.

Greed can also be a pressure in a sense but usually it is linked to some kind of perceived injustice such as “I didn’t get the bonus I deserved” or “I was overlooked for promotion”.

Rationalisation – Before they commit a crime people will justify to themselves why it is acceptable to go down that route. The example above is a prime one – people feel they have been cheated or hard done by and are therefore justified in ripping off their employer. Some might view the fraud as merely “borrowing” goods or money while others see it as payment they’re owed. Others might justify it by saying the fraud occurs against a large company which is well equipped to absorb such a loss so it doesn’t matter.

10-80-10 Rule*

The 10-80-10 Rule supports the general assumption of capability by breakdown of the population and the likelihood of fraud occurrences. Essentially:

• 10 percent of the population will NEVER commit fraud. This is the type of person that will go out of their way to return items to the correct party.
• 80 percent of the population might commit fraud given the right combination of opportunity, pressure, and rationalization.
• 10 percent of the population are actively looking at systems and trying to find a way to commit fraud.

Opportunity – People have to have the opportunity to commit crime. Provided the pressure and rationalisation are present, then staff will look for the opportunity to commit a fraud. It might be a case of a temporary situation where the risk of being caught is low or they may have access to banking details, cheque books, passwords etc. which make it easy for them to commit a fraud. Goods might not be inventoried regularly or not be locked away making it easy for staff to pilfer without anyone noticing. If you’re not actively trying to prevent fraud there are plenty of opportunities that arise for dishonest staff to take advantage of.

2) Approaches to conduct interview of a fraud suspect is as follows:

As a general principle this is a sound approach to follow and one should aim to gather evidence before such interviews with that key idea in mind. Being fraud examiner, we should look for the tell-tale signs that don’t necessarily indicate guilt or innocence but they will encourage you to take a closer look at the individual in question.

• Does the employee have known financial pressures or gambling, alcohol or drug addictions? Do they have a reputation for taking risks, or speculating on investments?
• Do they refuse to take holiday time or work with other colleagues? Do they work outside of normal hours when they don’t need to, especially if they work in accounting and have authority to make or receive payments?
• Have you noticed changes in their lifestyle? Are they suddenly a lot better off, driving a nice car or flashing the cash?
• Do they deflect questions around profligate spending with an excuse about an inheritance or lottery win? Some dishonest employees will have an excuse such as these lined up.
• Discrepancies in accounting such as payments not matching the account payee details or your general ledger can be an indicator.
• Are there multiple payments for similar or identical amounts close together but to different payees? One might be to pay a legitimate expense, another might be fraudulent.
• Is there a lack of separation of duties and power in your business? Are certain staff in several key positions?
• Do they have unusually close relationships with auditors or clients? If so, they may merit a closer look.To Conclude:
• The conclusion might be that is helping them to admit their wrong as the situation worse.
• •A signed confession will need to be drafted by legal counsel prior to the admission seeking interview.