Fraud Triangle
(Cressey, 1953) The three factors that make up the fraud triangle are:
- Pressure. Most individuals require some form of pressure to commit a criminal act. This pressure does not need to necessarily make sense to outside observers, but it does need to be present. Pressures can include money problems, gambling debts, alcohol or drug addiction, overwhelming medical bills. Greed can also become a pressure, but it usually needs to be associated with injustice. “The company has not been paying me what I am really worth,” for instance.
- Opportunity. An opportunity to commit the act must be present. In the case of fraud, usually a temporary situation arises where there is a chance to commit the act without a high chance of being caught. Companies that are not actively working to prevent fraud can present repeated opportunities to individuals who meet all three criteria of the fraud triangle.
- Rationalization. The mindset of a person about to commit an unethical act is one of rationalization. The individual manages to justify what he or she is about to do. Some may think they are just going to borrow the stolen goods, or that they need the money more than the “big” company they are.
Fraud Diamond
(Wolfe and Hermason, 2004) The FDT was first presented by Wolfe and Hermanson in the CPA Journal (December 2004). It is generally viewed as an expanded version of the FTT. Figure 2 presents the diagram for FDT. In this theory, an element termed capability has been added to the three initial fraud elements of the FTT. Wolfe and Hermanson (2004) argued that although perceived pressure or incentive might coexist with an opportunity to commit fraud and a rationalization for doing so, it is unlikely for fraud to take place unless the fourth element (i.e., capability) is also present. In other words, the potential perpetrator must have the skills and ability to commit fraud.
- Capability
A person’s position or function within a company may give him or her the ability to create or exploit an opportunity for fraud not available to others. According to Wolfe and Hermanson (2004), the fraudster also has the necessary traits and abilities to be the right person to pull it off, and that this person has recognized this particular fraud opportunity and can turn it into reality. Wolfe and Hermanson identified important observable traits related to individuals’ capacity to commit fraud.
Those threats include:
(a) authoritative position or function within the organization; for example, a CEO might have the ability to influence and perpetuate frauds due to his or her position within the organization.
(b) intelligence to exploit the accounting and internal control systems’ weaknesses to the greatest advantage and have the ability to understand how the system works.
(c) ego and confidence that fraudulent behaviors will not be detected, which will have an impact on their decision-making process; thus, the more confident they are, the greater chance that they will commit fraud..
(d) capability toeffectively deal with stress due to the risk of getting caught and manage the fraud over a long period of time. That person also must effectively and consistently lie to avoid detection and may even have to persuade others to believe that fraud does not take place.
Fraud Scale
(Albrecht et al, 1984) introduced
the “Fraud Scale Model” as an alternative for the fraud triangle model. The fraud scale includes
personal integrity instead of rationalisation and it is
particularly applicable to financial reporting fraud
where sources of pressure (e.g. analysts’ forecasts,
managements’ earnings guidance, a history of sales
and earnings growth) are more observable. They
defined personal integrity as “the personal code of
ethical behaviour each person adopts”.
Fraud Pentagon
(Crowe Howarth, 2011) (Crowe's fraud pentagon theory) Theory renewable deeper
peeling of the factors - factors triggering pentagon fraud is a fraud theory
(Crowe's fraud pentagon theory). This theory was put forward by Crowe Howarth
in 2011. The pentagon fraud theory is an extension of the fraud triangle theory
previously proposed by Cressey, in theory adds two more fraud elements are
competence (competence) and arrogance (arrogance).
Competence (competence) which is described in the theory of
fraud pentagon has a similar meaning to the capability / ability (capability)
previously described in the theory of diamond fraud by Wolfe and Hermanson in
2014. competency / capability is the ability of employees to ignore internal
controls, develop a strategy of concealment, and control the social situation
for personal gain (Crowe, 2011). According to Crowe, arrogance is an attitude
of superiority over the rights owned and feel that the company's internal
controls or policies do not apply to him.
White Collar Crime
(Edwin Sutherland, 1939) Within the field of criminology, white-collar crime has been defined by Edwin Sutherland as "a crime committed by a person of respectability and high social status in the course of his occupation" (1939). Sutherland was a proponent of Symbolic Interactionism, and believed that criminal behavior was learned from interpersonal interaction with others. White-collar crime, therefore, overlaps with corporate crime because the opportunity for fraud, bribery, insider trading, embezzlement, computer crime, copyright infringement, money laundering, identity theft, and forgery is more available to white-collar employees.
Abiyyu Dzaky Wicaksono (C1L014040)
Akuntansi Internasional
Universitas Jenderal Soedirman
