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The Fraud Triangle shows that fraud comes about as a result of: Incentive or pressure Pressure often causes a person to commit fraud. Usually pressure
The "Fraud Triangle" shows that fraud comes about as a result of:
Incentive or pressure
Pressure often causes a person to commit fraud. Usually pressure comes from a significant financial need or problem. With this financial need comes the desire or
need for secrecy The person who commits the fraud feels like their problems can't be discussed or shared with others.
Opportunity
Opportunity offers the opening to commit fraud. It is often caused by weak internal controls, poor management oversight, and through abuses of one's power or
authority.
Attitude or rationalization
A person reconciles within himher self why their behavior is ok
Fraud Triangle Example
You are about to be picked up by some friends to go out for the evening. All of a sudden you can't find your money. You look everywhere. You know it's in your room someplace, but you still can't find it and your friends are coming any minute. In a panic you decide to "borrow the money" by going into the wallet of your parent or roommate. You decide not to ask the "lender" since he or she is not currently available, and you are sure you will find your money the next morning, and replace what you "borrowed" before anyone knows the difference.
Pressure: Your friends are about to pick you up and you don't want to tell them you have no money to go out.
Opportunity: You know where your parent or roommate keeps money.
Rationalization: You will replace it before anyone knows the difference.
Video Segment # to View
This segment began with a brief introduction to WorldCom by Jeff Hoops, Ernst & Young's Americas Ethics and Compliance Officer. David Myers gave some additional background about the company, including environmental factors such as WorldCom's standing in Jackson. Myers described the first time that Scott Sullivan asked him tomake a change to the income statement.
Video Segment # Discussion Questions
What elements of the Fraud Triangle did you recognize in Myers description of the situation at WorldCom?
What were some early warning signs that Myers might face a conflict between his own ethics and his loyalty to the company?
If you were in Myers position, what do you think you would have done when Scott Sullivan, the CFO, first said that the numbers must be wrong?
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