Key Elements of Occupational Fraud

Category: Finance, Fraud
Last Updated: 28 Jan 2021
Pages: 5 Views: 325

Accounting fraud is the deliberate manipulation and abuse of the recordings of revenues or expenses with an aim of deceiving the users of financial statements of the operating profits that are better than actual (SmartSEM 2010). It is a false representation or entry made intentionally to defraud the users of financial statement. They include embezzlement or misappropriation of cash such as teaming and lading, entering more amounts on the payment side than actual, making fictitious payments on the cashbook and omitting to enter cash received.

Teaming and lading frauds are designed to misappropriate cash received by the cahiers from the debtors in that if debtor A pays in cash, his figures in the cashbook are misappropriated by the cashier only to be covered later when debtor B pays his. The practice is carried on until the cashier decides to repay the misappropriated amount when the outstanding amount is offset. An accountant can decide further to include ghost or dummy workers to inflate the payroll by either retaining the deceased an retired employees or inserting dummy employees in the payroll system.

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In an effort to please the equity owners of the company, an accountant can misappropriate cash by omitting some cash received, entering less cash than received in the accounting books, double entering payments on the credit side of the cashbook, or recording more cash than was paid. Further, he can misappropriate goods to show high asset ratios that indicates favorable performance of an entity.

Fraudulent manipulation of accounts are mostly committed by the directors, managers and responsible officials who would include overstating the profits with an aim of attracting more subscribers, obtaining more credit facilities, pleasing the shareholders and getting more commission based on profits. They can also understate the profits with an aim of avoiding and evading income tax, purchasing shares at lower prices and with an aim of giving a wrong implication to a competitor business. With all these forms of frauds, it is clear that many companies are vulnerable to fraudulent activities no matter how detective the control systems are.

The fraud triangle tries to show the elements that constitute fraudulent activities. They are conditions that contribute to occurrence of fraud in an organization and they include pressure or motivation, opportunities and rationalization. Motivation components of fraud or embezzlement are needs or pressures which constitute of; financial needs as desire to live beyond ones standard of life, desire to clear huge debts as in the Raymond case, financial distresses as job loss, high medical bills and investment losses; emotional feelings, such as the expectation of good results at work place, need to cover up a poorly performed job, imposition of unachievable goals and the feel of being unappreciated in the work place and finally, lifestyle conditions such as where an individual desires for material goods that he can not afford, peer pressure and gambling habit.

The fraud can also be due to poor management ethics and styles, high employee turn over, bad relationship with the auditors, lack of incentive compensations to employees, industrial changes in technology, tax and regulations and finally financial pressures as undiversified risks, notable cash flow problems and unfavorable economic conditions as inflation and recession (Kutenk 2009). Further, an opportunity to commit fraud includes ease of accessibility to people, assets, information and computer system that favors the practice.

For example, in the process of giving an employee ease access of assets and records for proper execution of his task, theft cases of assets, cash, inventory, tools and information is reported. A lapping scheme is adopted where the assets are stolen by affecting the balance sheet account. The perpetrator can also use a kiting scheme where he will take advantage of the timing lag between depositing and clearing a bank check.

The third and final piece of fraud triangle is the rationalization which allows the perpetrator to justify their illegal behavior. The condition favors those who have moral decay than those with standard morals. The embezzlers convince themselves by excusing their minds in a manner that justifies their actions (Kutenk 2009).

Since these frauds are criminal offences and that they can have materially effect the users of financial statements, there is need to institute measures to prevent their occurrence. A company should employ a strong internal control systems and in particular the, efficient interval check where for instance, a clerk’s work is countercheck by his fellow clerk(s) so as to ensure efficient control of the accounting frauds.

Employees should be awarded with reasonable salaries as per their qualification and experience to raise their honest working morale and reduce chances of fraud occurrence, an internal audit should be instituted to ensure that the figures in financial statements are actual and to ensure that the financial statement reports reflect a true and fair view of the company’s performance and state and the accounting staff should be given leave to countercheck their work. There should also be close supervision of the staff duties by a qualified and responsible personality as the interdepartmental transfer and rotation is encouraged.

As stated early, that fraud is a false representation or entry made intentionally to defraud the users of financial statement, this amounts to deception, trickery, concealment and/or dishonesty which is a criminal offence that should be to conviction. As a discipline to help reduce cases of frauds, according to the Federal Accounting Fraud Crimes, a willful making of false statement or omission of facts in documents to mislead or communicate in a manner to deceive is a criminal offence subject to a fine or imprisonment for 10 years or both and in case of the willful violation of securities law of the united states, a fine of not more than $5,000,000 for an individual and $25,000,000 for a corporation and/ or an imprisonment of not more than 20 years.

To state a claim under accounting fraud, the plaintiff must allege that the defendant made untrue statement of material fact, the plaintiff relied on the misrepresentations and sustained damages, and that the defendant made misrepresentations in connection with purchase or sale of a security (McNabb Associates, 2008).

In conclusion, fraud normally occurs when a personality is under pressure, has an opportunity to commit and conceal the fraud and he is able to rationalize in a way to justify their integrity. And because they can result to damages by those who rely on them, and the fact that they are illegal actions constituting crime, there is need to instate measures to control them by implementing a strong internal control systems and internal checks.


Hoffman, M., Kamn, J., Fredrick, R., & Pert, E., (1996). “The Ethics of Accounting and       Finance” Westport, Quorum pp. 85-100.

Kutenk (2009, November 3), “Key Elements of Occupational Fraud “                                                     Retrieved May 29, 2010 from     occupational-fraud-fraud-triangle-motivation-opportunity-and-rationalization

McNabb Associates, P.C. (2008, March 7), “Federal Accounting Fraud Crimes”

            Retrieved May 29, 2010 from

SmartSEN (2010, February 10) “What is Accounting Fraud?

             Retrieved May 29, 2010 from

Cite this Page

Key Elements of Occupational Fraud. (2018, May 19). Retrieved from

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