A perceived opportunity is the “enabler” factor, or, as Lister put it, “
the fuel that keeps the fire going”
[1]. Criminologist Donald Cressey also believed that the opportunity to commit fraud has a direct correlation with the ability to cover one’s tracks
[2]. This is basically to say that a perpetrator has been able to find
vulnerabilities within an organisation’s systems, processes, or controls which can be exploited with the aim of ‘
getting away with it’ (our emphasis). From this statement one can see that opportunity factors are divided into two prongs: General Information and Skills.
Let us first analyse some of the
General Information factors:
- Weak Internal Controls
In an organisation where there are inadequate or lax internal controls, an opportunity may be provided to defraud the company by manipulating financial records, overriding system controls, or bypassing security measures without detection. This can be represented by a high turnover of managers (resulting in a disruption of operational and decision-making processes); a lack of proper company supervision, circumvention, and a functioning system of authority
[3]; and missing or weak preventive antifraud programs
[4]. This lack of oversight can lead to individuals feeling emboldened to take advantage of the situation for personal gain.
- Inadequate Segregation of Duties
Lister writes about a ‘lack of segregation of duties’
[1] concurrently with high management turnover, as it would appear that in these circumstances, an individual may have excessive control over multiple aspects of a company procedure or transaction, providing an opportunity to manipulate or misappropriate assets or funds without detection. An inopportune leak of knowledge, from bosses or the board, has also been listed by Loebbecke, et al. as an example of a loss of segregation of duties, especially when those in management are not competent enough to detect irregularities
[4].
- Complex Processes or Systems
Complexity, whether it be related to company transactions, or the company’s organisational structure
[1], can create loopholes or gaps in processes and systems that can be exploited. Lack of clarity or convoluted procedures may allow individuals to manipulate transactions or data, making it harder to detect fraudulent behaviour.
- Poor Ethical Tone or Culture
An organisation's culture plays a significant role in shaping behaviour. If an organisation fails to promote and prioritise ethics, it may create an environment where employees perceive an opportunity to engage in fraudulent activities without facing consequences. An environment that is too permissive or negligent could also account for this
[4].
- Trust Violation
This is perhaps the most pertinent and relevant opportunistic factor discussed by academics. Cressey has specifically denoted fraud perpetrators as trust violators because of the blatant abuse and betrayal of the system that placed them in their positions of trust. This position is usually a role in a company with relatively high levels of responsibilities and therefore access to confidential information, trade secrets, client data, and the knowledge of the deficiencies in internal control (as discussed in point 1 above). Recent case examples of this in South Africa are the instances of fraud taking place within Eskom. On Thursday 11 May 2023, an employee of Eskom appeared in court on charges of fraud, theft, and money laundering
[5]. It was alleged that the employee, a Procurement Officer (and therefore somewhat in a position of power), colluded with a service provider to submit fraudulent documents and drastically inflate prices by more than R800 000.
The
Skill factors follow herewith:
As we introduced earlier, the perpetrator must believe that he will get away with the fraudulent act, and subsequently should have the skill, or
capability, to do so. First and foremost, he must have the understanding that there is an existing opportunity, as well as to be able to perceive all the potential risks. Hence, Wolfe and Hermanson (2004) in their journal article
The Fraud Diamond: Considering the Four Elements of Fraud identified the following traits necessary to carry out the act
[6]:
- Stress resistance to ensure not being discovered immediately;
- Confidence and ego;
- Coercion skills and a good grasp of social engineering to convince others to conceal their crimes or provide aid in the crime;
- Effective lying skills to avoid detection;
- The skills needed to be granted a role with high hierarchical position or function.
This concludes the evaluation of the opportunities surrounding fraud. The article to follow will finalise this article series with
Part 4, where we analyse the various rationalisations asserted by fraud perpetrators.
For more information, please get in touch with your
local Moore Firm.
References
[1] Lister, L. M. (2007). “A practical approach to fraud risk”, Internal Auditor, December, pp.1-30
[2] Kassem, R. and Higson, A.W., 2012. The new fraud triangle model. Journal of Emerging Trends in Economics and Management Sciences, 3(3), pp. 191–195
[3] Marden , R. and Edwards, R. (2005) Internal controls for the small business: Skimming and the fraud triangle. Internal Auditing 20(1): 3–10
[4] Loebbecke , J. K., Eining, M.M. and Willingham, J.J. (1989) Auditors’ experience with material irregularities: Frequency, nature, and detectability. Auditing: A Journal of Practice & Theory 9 (1): 1–28
[5] https://www.news24.com/news24/southafrica/news/another-eskom-employee-in-court-for-fraud-theft-and-money-laundering-in-mpumalanga-20230511
[6] Wolfe, David T., and Dana R. Hermanson. The Fraud Diamond: Considering the Four Elements of Fraud. CPA Journal 74.12 (2004): 38-42