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Conditions Encouraging Fraud and Abuse In The Organisations

Shape of Fraud” is the alias name often used to describe the conditions that encourage fraud and abuse to occur in the organisations and are represented by Triangular and Diamond Shapes. The four conditions that encourage fraud and abuse in the organisations are: opportunity, personal pressure, rationalization and capability. The combination of the four conditions is called “Fraud Diamond” while the combination of the first three conditions: (opportunity, pressure and rationalization) is called the “Fraud Triangle”.

Presented below are the images of the two shapes of fraud and a brief overview of the four conditions.

Below is a brief overview of the four conditions:

• Opportunity is the loopholes, weaknesses or gaps in the business processes, policies or procedures in the organisations or laws and regulations that the individuals can take advantage of to commit fraud and abuse. Examples include Internal control deficiencies such as one person being responsible for collecting cash, issuing payment receipts, keeping accounting records and custody of cash, making cash lodgments in bank, performing bank reconciliations and preparing period end accounting closure and financial reporting.

• Personal Pressures is the personal financial need(s) causing the individual to be wanting to committing the fraud. For example, family member illness, peer or societal pressure, harsh economic conditions, lavish lifestyle and addictions.

• Rationalization refers to self-entitlement mentality or quality of sense of judgement of the individual reinforcing self-conviction that it is ok to commit fraud or wrongdoing. For example, an individual may feel that the monthly salaries are poor and not regular while the business owners or leaders live large and lavishly.

• Capability means the observable abilities and traits of the individual’s which make it possible for the individual to commit fraud and abuse with boldness and little consideration to the consequences. Examples include the individual’s position in the organisation, expertise level (i.e., experience, knowledge, skills and duration in the organisation), ego, shamelessness, serial/pathological liar, gender and level of influence on others.