Theory Fraud

1.      Fraud Triangle

a.      Pressure

pressure of someone to do fraud because of theirown personal interest or many probolem in the company that make a company should solve it in a short time.

Example: the need for financial, lifestyle, etc.

b.      Opportunity

Opportunities that are usually used to commit fraud. These opportunities can occur because of the weaknesses of internal control then it make an opportunity the employee to do fraud.

Opportunity is the easiest element to be minimized through the process, procedures, and control of the possibility of fraud is happening.

c.       Rationalization

is the important element in this context, because in this step, the doers seeking a truth based on what have they done.

Example: action for the happiness of the family, the offender feel entitled to get everything better, etc.

2.      Fraud Diamond

This theory was introduced by Wolfe and Hermanson in 2004. This theory is the development of the theory of fraud triangle. In this theory, a new capability to be a factor that complements the factors in the fraud triangle (pressure, opportunity, rationalization). Fraud will not occur if there is no person who has the ability to do so. Means the ability of an individual nature that sparked the creation of opportunities that can be exploited. The main access is the opportunity to commit fraud. Pressure and rationalization is a contributing factor in doing fraud, required a good ability to analyze the opportunity and determine the tactics of fraud in order to obtain the maximum benefit.

1.      Pressure

·         Direct: real conditions currently experienced by actors

·         Indirect: opinions of actors who can support himself to commit fraud.

·         4 common reasons that cause stress:

ü  financial stability

ü  external pressure

ü  personal financial need

ü  financial targets

2.      Opportunity

·         The last thing to note is that the internal control.

·         Financial statement fraud can occur in several conditions:

ü  The nature of the industry

ü  Ineffective monitoring

ü  Organizational structure

3.      Rationalization

The character of the offender will determine the justification do.

4.      Capability

The components that can trigger the fraud:

o   position / function of a person in the company,

o   intelligence (brain)

o   level of confidence / ego (confident / ego)

o   The ability of coercion (coercion skills)

o   lie effective (effective lying), and

o   apstres restricted immunity (immunity to stress).

3.      Fraud Pentangon

This theory was put forward by Crowe Howarth in 2011. This theory is also the development of the theory of fraud triangle, with the added factor of competence and arrogance. Competence in this theory has the same meaning with the capability that a person's ability to find opportunities that exist, and determine the tactics in doing fraud in order to get the maximum benefit. While arrogance means according to Crowe is an attitude of superiority over the rights owned and feel that the company's internal control or policy does not apply to him.

This theory basically also from fraud triangle extension with addition in:

·         Arrogance: an attitude of superiority over who owned rights and feel that company’s internal control or policies isnot effected to him

·         Competence: ability of employees to ignore internal controls, develop a strategy of concealment, and control the social situation fro personal gain

4.      Gone Theory

a.      Greed: employee want to gain much money. This is related with the moral of someone

b.      Opportunity: opportunity to do fraud is big because you have inteliigance, position and so on

c.       Need: this factor will trigger a fraud because they have an urgent need, then the individu will take an easy way to solve it

d.      Exposure: when we expose 1 case of fraud in the company, the possibility to do the fraud again is high because of the weak of law enforcement dont make the doers afraid to do so.

Greed and Need are factors associated with fraud perpetrators individually. Which means dealing with the moral (greed) and motivation (need) the relationship between the mind, the pressure, the feeling of a person against the assets owned by the company. The pressure obtained in the working environment can also lead a person to commit fraud.

Opportunity and Exposure are factors related to the organization. Opportunity is highly dependent on the position / position of the perpetrator of the crime object. Opportunity (large and small) had appeared in every position. Example = management more have a great opportunity to commit fraud.

Exposure of fraud can not guarantee that other crimes or similar will happen again, either by the same or different actors. To provide lessons for the offender, then it is better if it is made of sanctions that can create a deterrent to commit fraud perpetrators.

5.      Agency Theory

Explain the relationship between cooperaation and the parties as principal shareholders and management as agent.

The principal wants the high return while the agent have theirown interest to gain higher compensation based on what have he done. This condition shows to you, if there is a conflict between principal and agent and usually we called conflict of interest

6.      Fraud Scale

This theory is continuing the fraud triangle. This theory to measure the possibility the fraud will occur with knowing the evaluation of pressure, opportunity, and personal integrity. If the high pressure, high opportunity and low integrity then the possibility of fraud is very high. Conversely, if the opportunity and the low pressure and high self integrity then the likelihood of fraud is low.

7.      Fraud Tree

This theory generally gives an overview of the people who commit fraud in the employment relationship. This theory is classified:

1.      Corruption

Almost all types of fraud is difficult to detect, because most parties to equally benefit. In doing this type of fraud, the perpetrator has been misuse of authority, responsibility, bribery.

2.      Asset Misappropriation

Abuse of fixed assets or assets owned by the company for its own sake. Different premises corruption, fraud of this kind is easy to detect because its value can be measured.

3.      Fraudulent Statement

Fraud committed by the company to cover the actual financial condition happens to manipulate financial statements to gain an advantage.

8.      Fraud White Collar Crime

White collar crime is not ordinary crime. Because it make a worsening condition and this crime do by the people that have position. Usually they do manipulate the data, or avoidance. Then they bring harm to the society welfare for example or the employee or goodwill of the company itself.