Call/WhatsApp: +1 914 416 5343

Theoretical models of fraudulent behavior

Theoretical models of fraudulent behavior

Consider the theoretical models of fraudulent behavior, evaluate internal controls, assess fraud risk factors, and apply prevention and detection techniques. You will also analyze the overall responsibilities of the auditors to organizational stakeholders while considering applicable auditing standards.
The fraud case Crisis at the Mill: Weaving an Indian Turnaround. You will introduce the subject of your case and describe the fraud scheme type. You will also analyze the type of fraud scheme
by explaining the process behind which this fraud was carried out and the breakdown of the internal controls that took place. You will also discuss the risk factors in assessing this type of fraud, the potential procedures and methods that could be used to assess the risk of this fraud type, the professional responsibilities of the auditors, and the evidence needed to prove the fraud.
Specifically the following critical elements must be addressed:
I. Introduction: What company is the subject of the case? Describe the type of fraud that occurred.
II. Analysis of Fraud Scheme Type
A. Explain the process behind how frauds of this type are carried out. Provide a specific example illustrating fraud of this type.
B. In this type of fraud scheme, how and where do internal controls break down? Provide examples of specific internal controls needed to reduce
this type of fraud.
C. What are the risk factors when assessing this type of fraud? Consider classifying the risk factors using the theoretical model such as the Fraud
Triangle.
D. How can analytical procedures and other detection methods be applied to assess the risk of this type of fraud? Provide specific examples of the
analytical procedures and what they indicate.
E. Discuss the professional responsibilities of auditors in detecting fraud. What sort of impact can an audit have on an organization?
F. What evidence is needed to prove the fraud? Why? To guide your review of evidence, please review the article The Basics of Evidence for Fraud and Corruption Investigators.

In recent years, corporate economic data processing scandals no longer grow to be unexpected media of your time. Circumstances such as Enron, WorldCom, Worldwide Traversing and Tyco are probably the most popular types who got lived with the overwhelming impact of fraudulence. These costly scandals have risen global issues about scam, wiping out billions of bucks of shareholder value, and generated the deterioration of traders and general public self confidence inside the financial markets (see, Peterson and Buckhoff, 2004 Rezaee, Crumbley and Elmore, 2004 in Bierstaker, Brody and Pacini 2006). A lot of research has reviewed scam-associated troubles, and the normal see is the fact fraudulence elimination needs to be the main concentration. It can be more affordable and a lot more powerful to stop fraudulence from going on rather than to recognize it following the incidence. Typically, when the fraudulence is identified, the amount of money is unrecoverable or the opportunity to restore the complete amount of the decrease is extremely slender. Moreover, it is actually costly and time consuming to look into scams especially involving huge-range worldwide surgical procedures. Nonetheless, in the event the concentrate is on scams prevention every one of the monetary loss, efforts and hard work to reconstruct fraudulent deals, locate the perpetrator, and reclaim missing funds may be preserved. Thanasak (2013:1) says that prior to making any attempts to reduce scams and deal with the health risks proactively, it is necessary for that company organizations to identify the standards ultimately causing fake behaviour by comprehending that are the fraudsters, when and why scams are fully commited. Various ideas have attempted to make clear what causes fraudulence and two of the most cited ideas are the Fraudulence Triangle Theory (FTT) of Cressey (1950) and Fraudulence Diamonds Hypothesis (FDT) of Wolfe and Hermanson (2004). Both them recognize the elements which lead perpetrators to commit fraud. According to Dorminey, Fleming, Kranacher, and Riley (2010), the foundation of your FTT times towards the works of Edwin Sutherland (1939) who coined the word bright white-collar crime, and Cressey was among Sutherland’s former pupils. Cressey (1950) centered his investigation on the aspects that lead individuals to engage in fraudulent and unethical exercise. His research later started to be referred to as the FTT. This hypothesis includes three aspects which can be needed for fraudulence to take place: (i) perceived pressure, (ii) option, and (iii) rationalization. David T. Wolfe and Dana R. Hermanson believed the former FTT must be maximizing to improve both scam reduction and diagnosis by contemplating yet another component higher than the about three, described aspects of FTT. They regarded four sided FDT thereby adding capability since the fourth aspect. Wolfe and Hermanson (2004, p. 38) state that fraud cannot successfully conceal unless the fraudster has the capability to have all personal traits and abilities even in the presence of the other three elements. In their separate works, Wolfe and Hermanson (2004), Thanasak (2013), Norman and Faizal (2010), Florenz (2012), Gbegi and Adebisi (2013) examined and discussed the FDT. Their main conclusion was that the FDT is an extended or improved version of the FTT with an addition of “capability” added to the three basic elements of fraud in the FTT. Therefore, this paper aims to explain further the convergent and divergent between the FTT and FDT. 2. Fundamental Concept of Fraud Fraud has grown rapidly over the last few years, and there is a growing trend for large organizations to consider hiring professionals such as forensic accountants to reduce the pressure and potential of occupational, financial frauds. ACFE (2010) and Sutherland (1943) occupational fraud is the process of using one’s occupation or responsibility to satisfy his personal interest by enriching himself through the deliberate abuse of power. Abuse of power by the fraud perpetrators includes deliberate mismanagement, and misrepresentation of organizational resources (fixed and current assets). Regardless of the type or nature of the sectors, various category of financial crime and other types of occupational are taking place such as swindles and employee trust violations (ACFE, 2010; Duffield and Grabosky, 2001; Levi, 2008; Kiragu, Wanjau, Gekara, and Kanali, 2013). Merriam Webster’s Dictionary of Law (1996) as quoted in Manurung and Hadian (2013, p. 4), fraud can be defined as: “Any act, expression, omission, or concealment calculated to deceive another to his or her disadvantage, specifically, a misrepresentation or concealment with reference to some fact material to a transaction that is made with knowledge of its falsity. And or in reckless disregard of its truth or falsity and worth the intent to deceive another and that is reasonably relied on by the other who is injured thereby.” Ernst and Young (2009) defines fraud as an act of deliberate action made by an entity, knowing that such action can result in a possession of unlawful benefits. Adeneji (2004) and Institute of Chartered Accountants of Nigeria (ICAN) (2006), state that fraud is an intentional act of individuals among management, employees or third parties who produce errors in financial reporting in favour of their personal desires. Fraud can also be considered as any deliberate misrepresentation, concealing and negligence of a truth to manipulating the financial statement to at the expenses of the firm. Perceived pressure refers to the factors that lead to unethical behaviors. Every fraud perpetrator faces some pressure to commit unethical behavior (Abdullahi and Mansor, 2015a). These pressures can either be financial of non-financial pressures. Albrecht et al. (2006) pointed out that, since the pressure to commit fraud may not be real it is important to use the word perceived. If the perpetrators believed that they were pressurized, this belief could lead to fraud. Perceived pressure can exist in various ways, especially in non-sharable financial need. Financial pressure is recognized as the most common factor that lead an entity to engage in an evil action. Specifically, about 95% of all fraud cases have been perpetrated due to the fraudster’s financial pressures (Albrecht et al., 2006). Lister (2007) states that pressure is a significant factor to commit fraud. He determines three types of pressure which are personal, employment stress, and external pressure. Vona (2008) further examines personal and corporate forces as motivations’ proxies for fraud commitment. Examples of perceived pressure include greed, living beyond one’s means, large expenses or personal debt, family financial problem or health, drug addiction and gambling. Lister (2007:63) defined the pressure to commit fraud as “the source of heat for the fire.” But having this pressure does not become a reason for someone to commit fraud. Murdock (2008) also argued that the pressure could be related to financial, non-financial, political and social. Political and social pressure occurs in a situation whereby a person feels and believes that they cannot afford to fail due to their status or reputation. According to Rae and Subramanian (2008) pressure relates to employees’ motivation to commit fraud because of greed or personal financial pressure. Along the same line, Vona (2008) and Rasha and Andrew (2012) believed that personal and corporate pressures are the key motive to commit fraud. The interaction of the elements above causes an individual to commit fraud (Rosefield, 1988; Vona, 2008; Okezie, 2012 and Rasha and Andrew, 2012). Chen and Elder (2007) recognized six basic categories for pressure as a transgression of obligations, personal problems, corporate inversion, position achievement and relationship between employees. Albrecht et al. (2008) categorized pressure in four groups including economic, vice, job-related and other pressures. Hooper and Pornelli (2010) opine that pressure can be either a positive or negative force.