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Discusses How An Organization Should Incorporate The Fraud Triangle To Reduce The Risk Of Fraud/Misconduct Within Their Organization. Discuss Each Element Of The Triangle And Identify Programs And Controls To Address

1297 words - 6 pages

”According to the Association of Certified Fraud Examiners, public and private organizations in the United States, on average, lose about seven percent of their annual revenues to fraud” (1). This numbers has continued to grow over the past fifteen years, and with the economic turmoil and increasing fraud, the need to reduce the risk of fraud is now more important than ever.
Before we can review the ways to reduce fraud, we first need to define what it actually is. As defined in our textbook, “Fraud, sometimes referred to as the fraudulent act, is an intentional deception, whether by omission or co-mission, that causes its victim to suffer an economic loss and/or the perpetrator to realize ...view middle of the document...

The first factor of the fraud triangle represents perceived pressure. This is an individuals’ or Organizations’ incentive or motivation to commit a fraudulent act. There are three common types of pressure that might motivate someone to commit a fraud: financial, emotional and lifestyle (2). These pressures can often way heavily on an individual or organization and make them feel that they are unable to share the pressure with others and turn to fraud to try to get themselves out of their troubling situation. There are a wide variety of this above mentioned pressure that range from one trying to live beyond their means, making a bad investment, finding they are unable to maintain quotas or goals or analysts’ expectations to greed to the need to feed ones’ ego, gambling or drugs. This is a hard factor for an Organization to control because at times it can be somewhat outside of their control and/or they were unaware of the employees’ pressures. I feel that it is very important for an Organization to place reasonable expectations on their employees and encourage an environment where there is open communication between employees and management. I believe that all levels within an Organization should constantly be paying close attention to see if there are any early warning signs of any perceived pressure within the Organization. For example, if an employee was becoming disgruntled or if any extenuating circumstances are present for an employee outside of the office such as losing their home. It is important to keep in mind that these pressures could be work or non-work related. While an Organization can only attempt to control the pressures related to work, it is essential for an Organization to be aware of any major non-work related factors that might trigger a perceived pressure that could lead a once great employee down the wrong road. It is also essential for Fraud Examiners to be familiar with the human psychology to have a greater understanding of why individuals and Organizations alike would have the needed to commit such fraudulent acts so they can better detect them.
The second factor in the fraud triangle is perceived opportunity. This is the condition that needs to be present for any fraud to occur because even if there is a perceived pressure, without the opportunity, the fraud could never occur. When one has a perceived pressure they seek an opportunity, with the lowest possible risk of being caught, to fulfill their current need. This perceived opportunity allows a person or Organization to commit a fraudulent act, conceal a fraudulent act and convert the fraud into a personal gain. The “opportunity” is the one factor of the triangle that an Organization should focus their energy on, as this is where they have the most control. An organization should develop strong internal controls where there are a separation of duties and sign-offs, adequate supervision, proper training, clear lines of authority,...

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