Page 22 - Insurance Times July 2021

o Individual financial influences that may lead to
fraud:
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 slim
iii. Punishment is very light
Fig: 1 - Why Do People Commit Frauds b. Mitigation factors:
i. What if security was tight?
What is "Fraud Triangle" ii. What if comprehensive internal controls
require an elaborate system?
When studying the risk of fraud, auditors often mention to
the "Fraud Triangle", explained first by sociologist Donald iii. What if the likelihood of finding is high?
Cressey. The "Angles" of the Fraud Triangle are made up of iv. What if punishment is severe?
three features which are existent for fraud: 2. Personally Created Opportunities:
The Fraud Triangle: a. Familiarity with operations (including cover-up
capabilities)
A framework for spotting high-risk fraud
situations b. Close association with contractors, dealers, and
other key people (22%)
Pressure c. Unwillingness to share duties (21%)
Financial or emotional force 3. Organizational Characteristics:
pushing towards fraud a. Weak internal controls
b. Absence of periodic rotation in job duties
FRAUD c. Constantly operating under a crisis environment
d. Little attention to details
Opportunity Rationalization e. Poor morale
Ability to execute Personal justification C) Rationalization factors:
plan without being of dishonest 1. How can you be proactive and know who will
caught actions rationalize fraudulent behavior?
2. Embezzlers don't fit the criminal stereotypes; they
Fig: 2 - Fraud Triangle appear to be trustworthy, sincere, likeable,
sociable, etc.
Steve Albrecht in his book Fraud Examination further gives 3. Personal Emotions that may lead to fraud:
details on reasons behind occurrence of: a. Strong community or social expectations to
A) Pressure factors: succeed (6%)

22 The Insurance Times, July 2021