Fraudulent Triangle

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Separation of duties is a security measure in order to prevent fraudulent reporting. Certain duties within the financial aspects of an organization are separated in order to prevent conflicting tasks to be conducted by the same user (Lu, Zhang, & Sun, 2009). The internal control practice of separation of duties failed to prevent fraudulent reporting because even though the CEO suspected the fraud he did not do anything about it. In the case study, the CEO and CFO both knew the controller was reporting revenues fraudulently. The CFO knew that meeting the required revenue numbers were important to the CEO; however, he did not prohibit the controller from making up the numbers in order to meet the bonus for himself and the stockholders (Edmonds, Tsay, & Olds, 2011). …show more content…

Opportunity is at the top of the fraudulent triangle because if there was not an opportunity, fraud could not exist (Edmonds, Tsay, & Olds, 2011). The opportunity to commit fraud can happen when there are no controls in place to hold accounting executive accountable. The opportunity to commit fraud is usually a planned behavior, in which the person feels like they can control the situation. If they feel the situation might get out of control, then chances are they will not find the opportunity to commit fraud. (Brown, Hays, & Stuebs, 2017). In the case study, the controller had the opportunity to forge the accounting reports because the CEO and the CFO both looked the other way, knowing what was happening. In order to reduce the opportunity to commit fraud, internal controls should be in place. Internal controls consist of policies and procedures that should be followed in order to reduce the opportunity of fraudulent reporting (Edmonds, Tsay, & Olds,

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