Question

Describe the Fraud Triangle. Fully explain the thought process behind each of the 3 sides of the Fraud Triangle and how a weak internal control system could result in fraudulent financial reporting. Your discussion must include an example scenario illustrating the weak internal controls. Include a biblical application in your analyses

Answer 1

Fraud Tangible

The Fraud triangle is a framework designed to explain the reasoning behind a worker’s decision to commit workplace fraud. The three stages, categorised by the effect on the individual, can be summarised as pressure, opportunity and rationalisation.

There are three steps on a Fraud Triangle:

1) The pressure on the individuality defines the motivation behind the crime. This can be either personal fiancé pressure or workplace debt,e.g- mounting medical bills, gambling debts, spouse laid off from their job

2) The opportunity to commit fraud in this stage the worker sees a clear course of action by which they can abuse their position,e.g-  an employee who is in a position that gives him or her the ability to add vendors and write checks realizes he or she has the opportunity to write checks to a ghost vendor

3) The ability rationalizes the crime this stage is a cognitive stage and it requires the fraudster to be able to justify the crime in a way that is acceptable to his or her internal moral,e.g-A number of cases that I have worked on related to long-term employees abusing their trust position by claiming too much overtime and/or other benefits.

How a weak internal control system could result frudulent financial reporting

When a company does not have strong internal control procedures, fraud this means that different employees handle different areas of the accounting duties. If the same person handles all duties, it is a of a weak internal control system,example- misappropriation of assets etc.