Fraud Examination Chapter 2 Why People Commit Fraud

Fraud Examination Chapter 2 Why People Commit Fraud Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

To the Student q This chapter covers some of the basic principles of fraud. It begins with a description of the types of people who perpetrate fraud. q We then discuss why people commit fraud, including the fraud triangle. Finally, we examine how honest individuals are recruited to participate in fraud schemes. q By understanding these basic principles, you will see fraud perpetrators in a different light and begin to understand how a trusted friend or colleague could, unfortunately, become involved in fraud. Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

Learning Objectives q Know the types of people that commit fraud. q Explain why people commit fraud. q Describe the fraud triangle. q Explain the fraud scale. q Understand how pressure contributes to fraud. q Understand why people rationalize. q Understand how people are recruited to participate in fraud schemes. Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

Type of People That Commit Fraud Who commits fraud? § Anyone! § Not demographically or psychologically differentiated § Have the profile of other honest people Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

The Fraud Triangle Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

The Element of Pressure Divided into four main groups: 1. Financial pressures 2. Vices 3. Work-related pressures 4. Other pressures Financial pressure is the most common type of pressure to commit fraud. Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

The Element of Pressure Financial Pressures Common Financial Pressures: 1. Greed 2. Living beyond one’s means 3. High bills or personal debt 4. Poor credit 5. Personal financial losses 6. Unexpected financial needs Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

The Element of Pressure Vice Pressures 1. Gambling 2. Drugs 3. Alcohol 4. Expensive extramarital relationships Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

The Element of Pressure Work-related Pressures “Get even with the employer” Motivated by these factors: § § § Getting little recognition Feeling job dissatisfaction Fear of losing one’s job Being overlooked for a promotion Feeling underpaid Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

The Element of Opportunity q Six major factors that increase opportunity: § Lack of controls § Inability to judge performance quality § Fail to discipline fraudsters § Lack of access to information § Ignorance, apathy and incapacity § Lack of audit trail Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

Fraud Recruitment Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license