Essay Sample on Financial Frauds: Detect, Investigate, Identify

Paper Type:  Essay
Pages:  7
Wordcount:  1755 Words
Date:  2023-03-27


In any organization, there are incidences of financial mismanagement and embezzlement which prevent financial growth of the business organization. These kinds of frauds take place within and outside the organization. They involve organization officials including the management and employees whose interest conflict the interest of the investors. Currently, such incidences of fraud are detected thus require serious investigation to identify individual employees or any other stakeholder who commit the crime (Albrecht and Albrecht, 2008). Within the same organization, various individuals are charged with different financial and non-financial responsibilities and therefore they owe the organization a duty of explaining the financial expenditure of the organization. It is very difficult to identify a fraudster is a large group of people who have different characters and demographics. Since all the employees in the organization do not expect to be found in actions of frauds, they are caught in situations such as pressure, rationalization and opportunity. In most organizations, fraudsters are people who hold senior positions and are the most trusted part of the organization as compared to other employees (Lister, 2007). For that reason, they violate the trust that directors and other employees have on them. These people are different from business owners and investors who participate in fraudulent actions to ensure that the business maximizes profits and minimize the cost of business operations. Managers are the most corrupt or involve in fraudulent actions in the organization since they commit 37.1% of the frauds to ensure that they meet their interest. Since currently there is intense competition among business organizations belonging to the same industry, business organizations need to work ways of retaining their employees by finding the means of satisfying their needs and wants. Dissatisfactions of employees needs are the main influence that introduces them to involve in fraudulent actions. The employers are not offering both monetary and non-monetary benefits to employees that satisfy their needs and for the employees to increase their financial and non-financial needs they engage in fraudulent actions that the employer is unaware of (Lister, 2007). It is not easy to identify personnel who engage in these acts or their fraudulent cats which they have committed in the organization. These actions can only be exposed by employing an independent auditor to assess the books of accounts to see whether the company or business organization are keeping proper books of accounts by the law and if the financial position and profits reflect the true fair view of the company state of affairs. To identify fraudulent employees, it is important to expose the suspected workers on intense pressure that can make them behave in a manner that shows that they are the culprits.

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It is not easy for a company or business organization to overcome fraudulent actions; it should give the fraud triangle a greater consideration. The fraud triangle is a framework created to explain why employees decide to engage in fraud. The fraud triangle has three stages namely pressure, rationalization and opportunity (Dorminey and Riley, 2011). All these stages are consistent with the value of an individual therefore they are not meant to intimidate organization employees. In handling the issue related to fraud, it is necessary for the business organization to begin exploring and analyzing the baseline risk and evaluates various types of frauds which they are likely to face or the employees are likely to engage in. There are other external threats which attract the attention of auditors easily such as cybercriminals, it is vital when the company does not assume risks which are likely to happen internally. 2016 report created by Certified Fraud Examiners indicates that most organizations across the globe lose 5% of their revenues to issues related to fraud. Business organizations located in the UK report that they lose more than L.140million in fraudulent acts of their workers. It, therefore, means that fraudulent activities are mainly carried out by organization employees. This paper, therefore, seeks to evaluate the causes of fraudulent activities and their possible solutions.

Causes of Fraudulent Acts in the Organization

The employees engage in fraudulent acts because of various factors such as pressure, opportunity and rationalization. These three factors are the reason behind what influence employees fraudulent acts (Lister, 2007). The desire to commit fraud is influenced by the pressure to solve the financial problem and this is possible when the employer underpaying the workers. The workers who are underpaid face financial challenges and inability to satisfy their financial and non-financial needs give them the pressure to engage in fraudulent activities which is against the organizational ethics (Dorminey and Riley, 2011). Opportunity is another important factor that makes workers commit frauds. Employees at the lower level are unlikely to commit fraud as compared to employees at the upper level. At the same time, people who have no opportunity to occupy any given position in the organization have a lower chance of engaging in frauds. It, therefore, means that the position that one holds in the organization gives him or her opportunity to involve in fraudulent activities. For auditors to identify or to understand that there is a fraud, they must understand the opportunity for the fraud to happen. This is important in ensuring that auditors understand which kinds of fraud scheme a given level of worker can commit and the extent to which the fraud risk happens when there is a weak internal control system.

The pressure to commit fraud appears in various forms namely financial and non-financial. For example, someone can involve in fraudulent acts when they are incapable of competing with others effectively, or when someone is greedy or when living beyond his or her mean. Such a person will, therefore, find ways or develop the pressure to meet personal needs leading to fraud (Dorminey and Riley, 2011). The example of non-financial pressure includes the desire that some employees have to release results better than others, issues relating to work frustration and pressure to complete the task. The inability to fulfil such non-financial needs also exert pressure on an individual to commit fraud in the organization so that they solve the underlying challenge at work or personal.

Employees also get the opportunity to commit fraud as a result of executives. The executive's leaves some gaps which employees use to either steal or embezzle funds meant for other purposes. These weaknesses are associated with the formation of a weak board, weak internal control system and inability to identify fraudulent behaviours. Executives also contribute to the occurrence of fraudulent acts by their actions (Lister, 2007). Such actions include failure to discipline subordinates, being incapable of accessing adequate information and lack of audit trail. These incidences or failures of executives open opportunity for workers to commit fraud in the organization.

The employees also commit fraud due to rationalization. There is also an incident where someone commits a fraud because he or she lacks personal integrity or does not have strong moral reasoning (Dorminey and Riley, 2011). An employee who lacks personal integrity can commit fraud without being under the pressure to satisfy a given person needs. Such a person just decides to involve in fraudulent activity as a normal ethical practice. The commitment of an individual to ethics can also be used when identifying an individual who can commit fraud. It is therefore used in evaluating personal integrity of employees in the organization to commit crime or fraud.

Possible Solution to Fraudulent Acts

Prevention of employees from involving in fraudulent actions, it is essential to introduce anti-fraud programs which prevent employees from getting the opportunity to involve in fraudulent actions in the organization (Wells, 2011). Although it has several challenges, investors must offer training to employees especially those who are working in high-risk regions to frauds such as finance. Training is essential in allowing workers to discover all the suspicious operations going on in the organization or identify regions or organization departments where malicious perpetrators can use or explore to do fraudulent activities. At the same time, it gives the business organization the power to express their commitment to their code of practice aimed at fighting fraud. Every person who involve in criminal acts associated with opportunity, there are factors such as corporate culture, motivation, and minimizing temptation and opportunity contribute significantly towards the reduction of fraudulent acts that happen within the organization (Vona, 2008). The extreme restriction is not the severity of the nature of the kind of punishment that actors receive but the probability of the identification of the criminal act and the perpetrators. For that reason, it is essential to design and put in place a suitable framework capable of discovering internal fraud. It must be a framework that uses regular fraud risk assessment to ensure that potential schemes and events are discovered at the right time and place.

It is also necessary to have a potential whistleblowing program within the organization. It should be given the priority to allow business owners to know that there is a likelihood of the occurrence of the fraudulent activity that has happened in the organization. The company must be ready to reward whistleblowers significantly to set a signal that there could be a criminal action going or is yet to take place in the organization. In most cases, employees are afraid of giving information about fraud in fear of retaliation. Therefore the organization must protect whistleblowers adequately to ensure that they do not get unnecessary intimidation.

The organization leadership should also involve in implementing programs aimed at fighting frauds. They must ensure that the business organization has a very strong internal control system that ensures that every senior officer is responsible for fraudulent acts that have happened in his or her department (Wells, 2011). For that reason, they should also receive relevant training on fraud prevention and detection to ensure that every incident of fraud in their department is discovered in its early stage. The executives if necessary must be in front and be ready to set the tone in fraud prevention.


Albrecht, W. S., Albrecht, C., and Albrecht, C. C. (2008). "Current trends in fraud and its detection", Information Security Journal: A global perspective, Vol.17, pp.1-32 Retrieved from

Lister, L. M. (2007). "A practical approach to fraud risk", Internal Auditor, December, pp.1-30

Vona, L. W. (2008). Fraud risk assessment: Building a fraud audit program. Hoboken New Jersey: John Wiley and Sons, pp.1-250

Wells, J.T. (2011). Corporate Fraud Handbook: Prevention and Detection. 3rd edition, Hoboken, New Jersey, John Wiley & Sons, Inc., pp.1-400

Dorminey, J., Fleming, S., Kranacher, M., and Riley, R. (2011). "The evolution of fraud theory". American Accounting Association Annual Meeting, Denver, August, pp.1-58.

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Essay Sample on Financial Frauds: Detect, Investigate, Identify. (2023, Mar 27). Retrieved from

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