This research proposal delves into the multifaceted realm of fraud, dissecting its various types, detection methodologies, and the psychological elements encapsulated in the Fraud Triangle model. Fraud, as defined by Firth, Mo & Wong (2005), is a deliberate act of deception or intentional omission with the aim of securing unlawful or unfair advantages. Within contemporary organizational landscapes, fraud takes diverse forms, with terms such as internal fraud, employee dishonesty, and occupational fraud characterizing deceptive activities. The study scrutinizes three prominent types of fraud—Asset Misappropriation, Bribery and Corruption, and Financial Statement Fraud—highlighting their prevalence, characteristics, and financial implications.
Fraud Types:
Asset Misappropriation: This common fraud type involves activities such as cheque forgery, inventory theft, payroll fraud, and service theft.
Bribery and Corruption: Constituting 30% of organizational fraud, this category encompasses kickbacks, shell company schemes, contract manipulation, and the substitution of inferior goods.
Financial Statement Fraud: Although less frequent, this type is considered the most expensive, involving manipulation of financial statements to create opportunities for personal or organizational gain.
Detection Methods:
Exploring fraud detection methods, the paper outlines traditional and contemporary techniques. Traditional methods often involve intricate investigations across diverse domains, while modern approaches leverage statistical techniques and artificial intelligence for efficient data analysis.
Fraud Triangle:
The Fraud Triangle model, developed by Kou et al (2004), dissects the psychological motivations driving employees to commit workplace fraud. It consists of three key components:
Pressure: The driving force compelling an individual to commit fraud, often stemming from financial difficulties and perceived inability to seek legitimate help.
Opportunity: The means by which fraud is committed, necessitating secrecy to maintain social status.
Rationalization: The psychological mechanism through which first-time offenders justify their actions, often attributing their behavior to external circumstances.
Significance for Managers:
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Fraud
Research Proposal
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Introduction
This paper aims at discussing three types of fraud, detection methods and relation of the elements of the
fraud triangle with occurrence of fraud. As per Firth, Mo & Wong (2005), fraud is defined as the
deceptive actions or an intentional omission to gain unlawful or unfair advantage. In modern
organisations, employee fraud comes in different shapes and sizes. There are different names given to
these frauds such as internal fraud, employee dishonesty and occupational fraud. According to Firth, Mo
& Wong (2005), there is more than one type of fraud present in the organizations.
Asset Misappropriation
The first type of fraud is asset misappropriation occurring frequently in the organizations and easiest of all
to understand. The different fraudulent activities included in this type of fraud are cheque forgery,
inventory theft, payroll fraud and theft of services.
Bribery and corruption
Another common type of fraud is bribery and corruption. As per Kennedy (2012), it forms the 30% of the
frauds happening in the organizations such as kickbacks, shell company schemes, manipulating the
contracts and substitution of inferior goods. The corruption scheme is expensive than the asset
misappropriation.
Financial Statement Fraud
The third type of fraud is financial statement fraud, which does not occur frequently and considered most
expensive. It involves the manipulation of the financial statements to develop financial opportunities for
an individual or entity such as manipulating the stock price, loan terms and other benefits from the
financial statement (Kennedy, 2012).
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Fraud Detection Methods
There is different fraudulent detection methods used to detect frauds. The traditional methods require
complex and time-consuming investigations to cope with different domains of knowledge. The techniques
that are used for the data analysis fall into different categories; statistical techniques and artificial
intelligence.
Fraud Triangle
It is a model developed to explain the reasoning for the employee to commit workplace fraud. The three
key stages included in the fraud triangle include pressure, opportunity and rationalization (Kou et al
2004). Pressure motivates the criminal to commit crime in the first place. The criminal might have a
financial problem and he is unable to get the help through legitimate ways. Therefore, he considers
committing illegal acts such as stealing cash or manipulating the financial statements. The second
component of the triangle is opportunity, which is the method adopted by the criminals to commit the
fraud. The criminals often adopt secretive ways to commit crimes in order to ensure that their social status
is maintained. The third component is rationalization, in which the first-time criminals do not consider
themselves as offenders. Their prime motto to carry out the crime is the people who are caught in the bad
circumstances.
It is critical for the managers to be well-versed with the fraud triangle so that the frauds in the
organizations can be minimized significantly. The managers are able to determine the factors that provoke
the criminals to commit crimes. Therefore, they can take appropriate steps towards reducing the frauds in
the organizations.