definitions of fraud

T
here are many definitions of fraud as there are individuals and experts defining it; each definition been affected just like auditing definition, his choice of words, experience, learning and environment of the individual.
Three definitions cited in Barbara R. Farrell, et al (1999) defined it as the “intentional deception to cause a person to give up property or some lawful right”( Webster’s new word dictionary); while that according to the Association Of Certified Fraud Examiners(!999) report to the nation on occupational fraud and abuse defined it as “ the use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of employing an organization’s resources or assets”, the third which is from the Federal Bureau Of Investigation describes fraud as “ the fraudulent conversion and obtaining of money or property by false pretense included are larcenies by bailee and bad cheques, except, forgeries and counterfeiting” (FBI 1984:342)

Other definitions of fraud includes that of the New York county which states that “ fraud is any atte4mpt to achieve financial gain through deceptive promises of goods, service or benefit that do not exist, were ever intended to be delivered or were misrepresented, characterized by deceit, concealment and violation of trust, it may or may not involve the use of force or violence” while SAS NO.82 cited in Mohammed( 2002) defin3ed it as “ intentional misstatement arising from fraudulent financial reporting or from misappropriation of assets”; on is part, Aguolu(2002) defined it “ as the intentional distortion of the financial statement to secure particular advantages such as the misappropriation of assets” he went further to give two forms through which it can occur as;
· Defalcation, which he describes as the misappropriation of a company’ assets.
· Manipulation which is either the falsification of a company’s records or the improper use of the assets of the company.

Deduced from the above definitions is that fraud is a deliberate or intentional deception for the gratification of an individual or group which requires a theft followed by alteration of the records to conceal the acts.

Fraud according to Mark P. Patti son can best be explained by

A supply of motivated offenders
The availability of suitable targets
The absence of capable guardians or a control system to “ mind the store”


CAUSES OF FRAUD

“Most people will say fraudsters are motivated by greed, but generally speaking, greed is no primary motivator (fraud and the nation CPA, 2003).

“The best and most widely accepted model for explaining why “good people” commit fraud is the fraud triangle. This is a model developed by Dr. Donald cressey, a criminologist whose research focused on embezzlers, people he called “trust violators”( fraud and the CPA,2003)

According to cressey, there are three factors that must be present, in order for ordinary people to commit fraud. All three factors must be present at the same time in order for fraud to occur. He gave the factors as:

Pressure
Opportunity
Rationalization, he went further to explain them thus:



Pressure: which he called perceived on-shareable financial need. The fraudster has some financial problem that he is unable to solve through legitimate means, so he begins to consider committing an illegal act as stealing cash or falsifying a financial statement as a way to solve his problem. An example of such pressures that commonly leads to fraud includes:

Need to meet earnings to sustain investor’s confidence.
Need to meet productivity target at work
Desire for status symbols such as big house.


What constitute a non-shareable need according to Cressey is particular to each individual and involves some sort of embarrassment, shame and disgrace. He further asserted that they all threaten the fraudster’s status as a person who is trusted by others. Among the examples given includes that of CEO who develops a new business plan that ultimately failed and brought with it a decline in sales figure. Having just suffered through two previous bad quarters, the CEO is afraid that this latest disaster will cost him his job. Unable to face the shareholders and the board of directors and tell the bad news, the CEO persuades the CFO to help him create fictitious sales to mask the losses. The CEO is convinced that they can increase sales and correct the book next quarter.


Opportunity: this Dr. cressey, defied as the method by which the crime can be committed. The person must see some way she can use (abuse) her position of trust to solve her financial problem with a low perceived risk of getting caught. So the fraudster not only has to steal funds, she has to be able to do it in a way that she will likely not be caught and the crime itself will not be detected. For example, if an employee has access to bank cheques, she may see an opportunity to forge a company cheque payable to herself. But that cheque may well be spotted during the reconciliation of bank statement and she would be caught. In this case, even though there is an opportunity to steal the funds there is no opportunity to steal them in secret; but suppose the employee reconciles the bank statement. Now she can write a cheque payable to herself and then when the bank statement arrives, she can destroy the fraudulent cheques and force the balance on the reconciliation.


Rationalization: because the fraudster does not see himself as a criminal, he must justify the crime to himself in a way that makes it an acceptable or justifiable act. Common rationalization includes:

a. I was only borrowing the money
b. I was under paid/ my employer had cheated me.
c. My employer is dishonest toothers and deserves to be fleeced.


Rationalization is only needed at the initial stage, once the act has been completed, the rationalization is often abandoned.

Dr. Cressey in conclusion however admitted that ht e fraud triangle does not apply to those he called “predatory employees”- the person who takes a job with the intent of stealing from his employer. He went further to give reasons sanctions do not deter fraud. Among the reasons was that while carrying out fraud, offenders do not envisaged been caught as they do it in secret; besides, they do not view their actions as criminal

Toby bishop, president and CEO of the association of certified fraud examiners cited in stanek (2007) in his submission about the causes of fraud stated that “it is a fairly consistent series of major gaps in anti- fraud measures at companies”


Others factors contributing to fraud according to Mark P. Patti son includes


Poor internal control
Management over-ride of internal control
Collusion of employees
Collusion between employees and third parties


Dwelling on the motive for fraudulent financial reporting, Mohammed (2002) listed the need;

To obtain a higher price when a company is sold.
To meet the expectation of shareholders;
To obtain loan;
For personal gain.