Page 6 - Risk Management Bulletin Jan- Mar 2021
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RMAI BULLETIN JANUARY TO MARCH 2021


             clarification of it needs to take account of various  What is "Fraud Triangle"
             aspects.
                                                              When studying the risk of fraud, auditors often
                                                              mention to the "Fraud Triangle", explained first by
             Looking from the fraudster's perspective, it is
                                                              sociologist Donald Cressey. The "Angles" of the Fraud
             necessary to take account of:
                                                              Triangle are made up of three features which are
             X   motivation of potential offenders            existent for fraud:
             X   circumstances under which individuals can justify
                 their potential crimes away                             The Fraud Triangle:
                                                                 A framework for spotting high-risk fraud
             X   opportunities to commit crime(s)
                                                                                situations
             X   perceived suitability of targets for fraud
                                                                                Pressure
             X   technical ability of the fraudster
                                                                       Financial or emotional force
             X   likely and real risk of discovery after the fraud has
                                                                          pushing towards fraud
                 been carried out
             X   expectations of consequences of discovery
                 (including non-penal consequences such as job                   FRAUD
                 loss and family stigma, proceeds of crime
                 confiscation, and traditional criminal sanctions)  Opportunity        Rationalization
                                                                Ability to execute    Personal justification
             X   actual consequences of discovery.
                                                                plan without being        of dishonesh
             There are different views on why do people commit        caught                 actions
             Frauds. As per researcher Tommie Singleton, PhD,
                                                                           Fig: 2 - Fraud Triangle
             University of Alabama:
                                                              Steve Albrecht in his book Fraud Examination further
             Some individuals are honest all of the period.   gives details on reasons behind occurrence of:

             Some individuals are dishonest all of the period.  A)  Pressure factors:
                                                                 o   Individual financial influences that may lead
             Most individuals are honest some of the period.
                                                                     to fraud:
             Some individuals are honest most of the period.         1. Financial difficulties (33%)
                                                                        a.  High personal debts or financial
                                                                            losses
                                                                        b.  Inadequate income
                                                                     2. Living beyond one's means (44%)
                                                                 o   Individual conducts that may lead to fraud:
                                                                     1. Broad stock market or other types of
                                                                        speculation (starting a new business)
                                                                     2. Extensive gambling
                                                                     3. Illicit affairs
                                                                     4. Excessive use of alcohol or drugs (12%)
                                                              B) Opportunity factors:
                                                                 1. Magnitude of fraud would decrease if the
                                                                     opportunity did not exist:
                                                                     a. Reasons for increased fraud risk:
                                                                        i.  Crime requires a simple act
                                                                        ii.  Chances of being detected are very
                   Fig: 1 - Why Do People Commit Frauds                     slim


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