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Conrad Skidmore

Professor Baker
COMM 1311.001
23 March 2015
General Purpose: To inform.
Specific Purpose: To inform my classmates about the harm fraud has on society as well
as the three components of the fraud triangle.
Thesis: An analysis of the motivation behind fraud reveals that there are three critical
components: Pressure, Opportunity, and Rationalization.
Title: The Fraud Triangle

I.

Introduction
A. How big is the problem of internal fraud?
1. The Association of Certified Fraud Examiners' (ACFE)
estimated in 2004 that occupational fraud in the U.S. adds up to
about $660 billion a year (Point For Credit Union Research &
Advice).
2. As the world looked on with disbelief at the magnitude of
corporate fraud of the early 2000s carried out by companies such
as Enron, Tyco, and WorldCom, legislators and accountants took
immediate action towards improving detection and prevention.
B. Learning about the circumstances that lead to fraud is key to come up with
effective preventative action.

1. Fraud must be understood because not only does it harm the


companies themselves, investors lose billions of dollars in the
collateral damage.
C. So why does fraud continue despite better controls and harsher penalties?
1. An analysis of the motivation behind fraud, based on the research
of Donald Cressey, a well-known criminologist, reveals three
critical components: Pressure, Opportunity, and Rationalization
2.

According to [the Statement of Auditing Standards 99], each


side of the fraud triangle represents a condition that is generally
present when fraud occurs (Boyle, 42).

[Pause]
Transition: First, lets take a look at the most important factor, pressure.

II.

Body of the Speech


A. Everyone in the workplace feels financial pressures or expectations at one
point or another.
1. Pressure to meet financial performance expectations imposed by
investors and management can create a really stressful
environment.
a. According to Alexander Buchholz, an Associate Professor
of Accounting at City University of New York, If
management exhibits a sharp tone that a company's net

income (loss) should never be at a variance with the


original budget, this now creates pressure to make sure
they achieve the "desired" bottom line or face fear of
termination (111).
b. This may create significant pressure to carry out earnings
management, or outright fraud.
c. Dr. Joseph Astrachan, a Professor of Management and
Entrepreneurship at Kennesaw State University in Atlanta,
spoke with The Wall Street Journal and says that business
owners are advised to watch for the employee who might
be under financial pressure (Arden).
2. Earnings-based compensation incentives are another problematic
area because it creates an environment focused on the personal
benefit of reaching financial goals.
a. The Global Economic Crime Survey published by
PriceWaterhouseCoopers in 2009 has a statistic revealing
that 68% of fraud practitioners attributed incentives as the
greater risk of fraud (5).
b. When there is a risk of lost compensation if financial
expectations are missed, untrustworthy employees could be
convinced to commit fraud.
c. Compensation plans, unfortunately, are still, more often
than not, tied to financial statement performance goals.

Transition: The financial pressures of everyday living for all the employees of a company
can of course create a supposed need for them to fraud the company, but having the
opportunity to carry out the fraud is another issue.

B. Opportunities in the workplace to commit fraud are the second factor.


1. Financial managers, especially senior-level positions, have
unique access and ability to the financials of a company.
a. They have a broad understanding of the inner workings of
the organization from their long working experience, giving
them the ability to workaround internal controls.
b. The Global Economic Crime Survey published by PWC
also states that Economic crimes committed by middle
managers have risen very strongly, now accounting for
42% of all internal frauds, up from 26% in 2007 (16).
c. It is clear that additional efforts need to focus on preventing
fraud in top-level management.
2. Based on the findings of three Certified Public Accountants,
Douglas and James Boyle, and Daniel Mahoney, regulators
seeking to limit fraud have mainly their focused efforts on
internal controls.
a. This is because internal controls are targeted at decreasing
opportunities for fraud.

b. When designed correctly, internal controls can help prevent


and also identify instances of fraud.
c. Internal controls are necessary, but they are insufficient on
their own.

Transition: Lastly, the individual uses rationalization in order to continue with the fraud.

C. Rationalization is simply the perpetrator trying to justify their actions.


1. Unfortunately, this is an element that cannot be regulated
a. Individuals will always try to assure themselves that they
are in the right.
b. This is all in the mind of the person committing the fraud,
so of course it is impossible to regulate.
2. Focus on the human tendency toward rationalization could prove
to be an effective tool for reducing fraud.
a. With proper educational approaches, people can be trained
to immediately recognize when they are rationalizing
unacceptable conduct.
b. This would allow individuals to immediately recognize
their rationalizations and, in turn, change their thought
process to a much more appropriate one before they
commit fraud according to Certified Public Accountant,
Douglas Boyle (43).

Transition: This concludes the overview of the Fraud Triangle.

III.

Conclusion
A. When the three elements of the fraud triangle, pressure, opportunity, and
rationalization combine, it creates a powerful influence to commit crime.
B. Despite being able to pinpoint where fraud is likely to happen, it is
virtually impossible to stop all fraud, which is where effective training and
auditors come in to save the public from billions lost in stocks and other
investments.

Works Cited
Adapted from Statement on Auditing Standards 99. "Avoiding The Fraud
Mind-Set." Diagram. Strategic Finance 97.2 (2015): 42. Business Source
Complete. Web. 9 Mar. 2015.
Arden, Dale. "Small Business (A Special Report); Inside Jobs: Small-Business Owners
Need to Trust their Employees; Up to a Point." Wall Street Journal, Eastern
edition ed.Apr 30 2007. ProQuest. Web. 7 Mar. 2015.
Boyle, Douglas M., James F. Boyle, and Daniel P. Mahoney. "Avoiding The Fraud
Mind-Set." Strategic Finance 97.2 (2015): 41-46. Business Source Complete.
Web. 9 Mar. 2015.
Buchholz, Alexander K. "SAS 99: Deconstructing The Fraud Triangle And Some
Classroom Suggestions." Journal Of Leadership, Accountability & Ethics 9.2
(2012): 109-118. Business Source Complete. Web. 9 Mar. 2015.
"Internal Fraud Costs About $660 Billion Annually." Point For Credit Union Research &
Advice (2006): 4. Business Source Complete. Web. 21 Mar. 2015.
The Global Economic Crime Survey." (2009): 1-24. PriceWaterhouseCooopers, Nov.
2009. Web. 21 Mar. 2015.

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