1. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Fraud Examination Chapter 2 Why People Commit Fraud

2. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. To the Student  This chapter covers some of the basic principles of fraud. It begins with a description of the types of people who perpetrate fraud.  We then discuss why people commit fraud, including the fraud triangle. Finally, we examine how honest individuals are recruited to participate in fraud schemes.  By understanding these basic principles, you will see fraud perpetrators in a different light and begin to understand how a trusted friend or colleague could, unfortunately, become involved in fraud.

3. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives  Know the types of people that commit fraud.  Explain why people commit fraud.  Describe the fraud triangle.  Explain the fraud scale.  Understand how pressure contributes to fraud.  Understand why people rationalize.  Understand how people are recruited to participate in fraud schemes.

4. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Type of People That Commit Fraud Who commits fraud?  Anyone!  Not demographically or psychologically differentiated  Have the profile of other honest people

5. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Fraud Triangle

6. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Element of Pressure Divided into four main groups: 1.Financial pressures 2.Vices 3.Work-related pressures 4.Other pressures Financial pressure is the most common type of pressure to commit fraud.

7. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Element of Pressure Financial Pressures Common Financial Pressures: 1.Greed 2.Living beyond one’s means 3.High bills or personal debt 4.Poor credit 5.Personal financial losses 6.Unexpected financial needs

8. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Element of Pressure Vice Pressures 1.Gambling 2.Drugs 3.Alcohol 4.Expensive extramarital relationships

9. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Element of Pressure Work-related Pressures “Get even with the employer” Motivated by these factors:  Getting little recognition  Feeling job dissatisfaction  Fear of losing one’s job  Being overlooked for a promotion  Feeling underpaid

10. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Element of Opportunity  Six major factors that increase opportunity:  Lack of controls  Inability to judge performance quality  Fail to discipline fraudsters  Lack of access to information  Ignorance, apathy and incapacity  Lack of audit trail

11. Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Fraud Recruitment