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3-2 Final Project Milestone One: Introduction
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The elements of fraud
Fraud is defined as a criminal or wrongful deception intended to result in personal or
financial gain. According to Metka and Sandra, there are many elements of fraud that comes
under the common law (Tekavčič & Damijan, 2021). It includes a material false omission or
statement, the suspect aims to induce the victim to depend on the false omission or statement,
the suspect had an idea about the false omission or statement, and the victim depended on the
false omission or statement and suffered damage or injury.
Therefore, it is important for all individuals to have a good understanding and research
knowledge about the fraud concept. This can help the individual to determine the fraud
incidents in their running firm. It has been identified that individuals need to pay attention to
past fraud records, which can give them a clear idea about past events and how they have
occurred. This understanding can help to prevent their firm from the same fate by implementing
fail-safes in their systems.
Stakeholders play a significant role3 in organizational settings. They are the individuals
or groups whose funds are invested in the organization or firm either directly or indirectly.
When fraud incidents happen within the organization, it affects the whole company and makes
it face a major loss, so the stakeholders get impacted directly or indirectly. It has been identified
that sometime a fraud situation may lead to the loss of jobs among employees, deprive
consumers of accessing commodities, or may loss of tax revenue sources. Thus, it becomes
important for the stakeholders to have a good knowledge of fraud beyond the accounting
departments to help
Different theories of crime causations
Many theories are associated with crime causations, including The strain theory
suggests that a lot of stress or strain may lead to making people involved in crime. On the
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contrary, conflict theory refers to the set of criminological theories that states antisocial
behaviour is observed in society because people possess economic and social power, resulting
in social or economic inequality and class conflict (Morin, 2014). In general, a crime refers to
the violation of social behaviour or social rules expressed or interpreted by criminal law. The
investigator can easily determine the perpetrator and the crime extent with the identification of
the fraud by conducting the fraud analysis. Through this analysis, they can mitigate damage
quickly, avoid finds, and mitigate reputational damage and financial loss. For example, the
fraud may get engaged in violence or criminal activities to end harassment, or they may steal to
minimize the financial losses of the company.
Evidence
When fraud occurs in a company, three conditions are observed that include pressure,
opportunity, and rationalization (Sandhu, 2016). In general, the fraud triangle has three aspects;
where the first angle pays attention to the intensive or pressured fraud perpetrators who are in
financial need but cannot tell others. The second angle focuses on the opportunity to commit
fraud by getting influenced by the actors. The third angle pays attention to giving justification
for commenting on fraud.
Regulatory and legal factors
A fraud prevention strategy is usually implemented by companies to detect fraudulent
banking actions or transactions and prevent these actions from creating reputational and
financial damage to the financial institution and customer. However, the fraud pentagon theory
states that the fraud detection process might get affected by five factors Arrogance,
Competence, Opportunity, Pressure, and Rationalization (Soepriyanto et al., 2021). It has been
identified that the auditor is completely responsible for obtaining reasonable assurance. It is
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essential to provide the right training to the auditor and other employees about fraud activities to
combat fraud and defalcations within the business settings.
Recent developments
A recent development to address frauds and defalcations within business settings can
significantly impact fraud investigation and the accounting industry. The integration of
artificial intelligence (AI) in the accounting industry can help to reduce human errors as well as
reduce fraud activities. Automating the accounting process may also reduce the stress,
responsibility, and workload of the employees, reducing fraud incidence. For instance,
WorldCom fraud cases can be changed in the fraud investigation with the integration of
automation that can help them identify the fraud easily.
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Reference
Morin, R. (2014). Conflict theory. The Encyclopedia of Theoretical Criminology, 1–4.
https://doi.org/10.1002/9781118517390.wbetc124
Sandhu, N. (2016). Behavioural red flags of fraud— a qualitative assessment. Journal of
Human Values, 22(3), 221–237. https://doi.org/10.1177/0971685816650579
Soepriyanto, G., Meiryani, M., & Modjo, M. I. (2021). Theory and factors influencing fraud in
financial statements: A Systematic Literature Review. 2021 The 6th International
Conference on E-Business and Mobile Commerce.
https://doi.org/10.1145/3472349.3472359
Tekavčič, M., & Damijan, S. (2021). Forensic accounting vs fraud examination: Roles,
importance and differences. Journal of Forensic Accounting Profession, 1(2), 29–47.
https://doi.org/10.2478/jfap-2021-0007
