Page 266 - F1 - AB Integrated Workbook STUDENT 2018-19

Chapter 17

The prerequisites of fraud

2.1 Prerequisites

Prerequisites of

fraud

dishonesty opportunity motivation

All three are usually required – for example an honest employee is unlikely to
commit fraud even if they are given the opportunity and motive.

Factors that might indicate an increased risk of fraud and error include (amongst
others):

 management domination by one person, or a small group of people

 unnecessarily complex corporate structure

 poor staff morale

 personnel who do not take leave/holidays

 lavish lifestyles of employees

 inadequate segregation of duties

 lack of monitoring of control systems

 payments for services disproportionate to effort

If management have established a strong system of internal control then the potential
for fraud is greatly reduced.

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