Ch 1 - Introduction Flashcards
What is fraud?
Any crime for the gain that uses deception as its principal modus operandi.
What are the four legal elements that must be present for fraud to occur?
- A material false statement
- Knowledge that the statement was false when it was uttered
- Reliance of the victim on the false statement
- Damages resulting from the victim’s reliance on the false statement
Are all deceptions deemed frauds?
No
Do all frauds include deception?
Yes
What are examples of frauds committed by/on behalf of organizations?
Defrauding customers
False financial statements to investors
What is an example of fraud committed against organizations?
Usually but not exclusively by employees (“Occupational Fraud”)
What are the factors that cause a person to commit occupational fraud?
- The Fraud Triangle -
Pressure
Rationalization
Opportunity
What are some examples of pressure?
Financial pressure - “non-shareable financial need”
Expensive vices
Economic hardship
Desire
What are the 3 aspects of opportunity?
- General knowledge that position of trust could be violated/stealing would be able to be carried out
- Technical skill to carry out violation
- Opportunity to avoid punishment
What is it called when employees feel like the organization they work for owes them?
Wages in Kind
What are wages in kind?
The employee believes the company owes them
What is the primary reason people commit fraud against employers?
Wages in kind - employee thinks company owes them
Why does understanding rationalization matter?
Diagnostics - whom to keep an eye on
Informs management decisions
- treat employees fairly, and they’ll be less likely to rationalize
Helps get people to confess their crimes
What three steps must be completed to perpetrate a fraud?
The Act
The Concealment
The Conversion
What is Sutherland’s theory of differential association?
Criminal behavior and attitudes toward crime are learned from family and peers
