Fraud Triangle And Weak Internal Control Liberty University Acct 650 Essay, Db 1

1039 words - 5 pages

Fraud Triangle and Internal Control Systems
Discussion Board 1
Anita M. Joslyn
ACCT 650 Corporate Governance and Fraudulent Financial Reporting
Liberty University
16 May 2019
Fraud Triangle and Internal Control Systems
While evil exists in this world, there will always be those who will search out “ways to take advantage” of others (Harris, 2010, p. 74). A brief description of Cressey’s fraud triangle offers three attributes that fraudsters usually possess when committing their illegal activities. Since internal control systems may be the main deterrent to fraud within a company, how a weak internal control system may result in fraudulent financial reporting and an illustration of a weak system will be briefly examined. A Biblical application of how Christian ethics apply will also be presented.
Fraud Triangle
The fraud triangle is based on Cressey’s work and includes “three common traits” (Roden, Cox, & Kim, 2016, p. 81). These authors indicated one side of this triangle is the opportunity to carry out the fraud (p. 81). This side of the triangle is discussed further in the next section. Another side “is a perceived financial need or pressure providing motivation” for whatever the fraud activities might deliver (Roden, et al., 2016, p. 81). This need or pressure might be comprised of “poor financial performance, excessive pressure to meet targets, and significant performance-based compensation” (p. 82). Rationalizing the fraudulent actions to align them “with their values” is the third side of this triangle (p. 81). This rationalization might involve beliefs that the forecasts are unrealistic or a “strained relationship with” auditors (p. 83).
Internal Control System
Liu, Wright, and Wu (2015) stated a widespread belief about internal control systems “is that strengthening” them “will reduce fraudulent financial reporting since” these systems were created to “limit opportunities for such behavior” (p. 307).
How Weak Internal Control Systems Could Result in Fraudulent Financial Reporting
Higgins (2012) presented six control measures which should be an efficient deterrent (p. 1181). The first of these measures is to establish one person who is responsible for each specific task (p. 1181). Therefore, any fraud committed involving that task will make that individual suspected. Whereas, if many are accountable for a given task, there would be many suspects to eliminate. Next is to segregate duties so “different individuals should be responsible for related activities” (p. 1181). Related to this measure is the documentation procedures control. These “documents provide evidence that transactions and events have occurred” (p. 1181). These last two measures provide a system of checks and balances. A control measure which also increases the effectiveness of those checks and balances is having an “independent internal verification” employee (p. 1181). This is someone...

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