Who will Commit Fraud, and Why?

Most people will not commit fraud, because in society we assume that people we first meet are always honest and that there are more honest than dishonest people. Fraud does not differentiate between the rich or poor in any society.

There are many factors that contribute to people wanting to commit fraud, such as:

• Low self-esteem.
• Personal background and experiences while growing up.
• Pier pressure on individual.
• Substance abusers.
• People living with financial pressure.


Five common reasons for employee crimes:

• The employee feel some frustration about some aspect of his/her job or
• Personal life that is not job related.
• The employee wants to get even with his employer because he/she feels abused in the work place.
• The organisation’s internal controls are so poor that employee’s is tempted to steel.
• Employees today are morally, ethically and spiritually bankrupt.

How to Create and Maintain a Culture of Honesty and Sound Ethics

• Creating and maintaining a culture of honesty and sound ethics

- Setting the tone at the top: It is important for top management to lead by example
- Creating a positive work environment: To enhance employee well being, productivity and job satisfaction
- Hiring and promoting appropriate employees: Implement proactive and pre employment vetting procedures.
- Raining: All new appointees to under go organization’s induction course, and where applicable receive additional or refresher training.
- Confirmation: Managers must let the employee know their accountability and responsibilities.
- Discipline: Regular communication via different forms of media about consequences of committing wrong doings and fraud.


• Evaluating antifraud process and control

- Identifying and measuring fraud risk: It is the primary responsibility of management to establish and monitor all aspects of the organisation’s fraud risk assessment and prevention activities.
- Mitigating fraud risk: Streamline organisation’s activities and processes in order to reduce or eliminate certain fraud risks.
- Implementing and monitoring appropriate internal control: Identify the processes, controls and other procedures that are required to moderate the identified risks and implement appropriate monitoring controls.

• Developing and appropriate oversight process

- An organisation should have an appropriate external and internal oversight function in place to deter or prevent fraud effectively.

The Responsibility of Management in the Prevention of Fraud

• Set moral environment in which the organization function.

• Make available resources for the organization to accomplish its plans and follows its policies.


• Establish and maintain internal controls.

• Determine appropriate cost versus control ratio (exposure – safeguard =risks).

• Keep everyone up to date within the organization as to the current and daily status of the organization.

Five Different Forms of Fraud

• Cash Fraud – Skimming: Cash is removed from organization before transaction is recorded in the accounting systems.

• Cheque Fraud – Stopped cheque: Bearer pays for goods by cheque, which is accepted in good faith or has been authorized/cleared by the bank and once the goods are in their possession, the bearer stop the cheque before the transfer can take place.


• Procurement Fraud – False invoices: False invoicing, nondelivery of purchased goods.

• Computer Fraud - Computer programmes and data are changed without authorisation to the benefit of the perpetrator or detriment of the company.

• Payroll Fraud - “Ghost” workers: Fictitious employees on the payroll

Five Forms of Commercial Crime:

• Kiting: This is the process whereby cash, which is either nonexistent or in transit, is moved between several bank accounts.

• Skimming: Cash is removed from organization before transaction is recorded in the accounting systems.

• Misappropriation of funds: If one employee is responsible for collecting and depositing cash and then removes funds from the organization for their own use then conceals the theft through the deposits by destroying the cash receipts.


• False endorsements: This is whereby cheques are not properly cross and this gives an opportunity for staff to steal the cheques and endorse it on the back, to either have the cheque cashed or deposited into another account.

• Forging a signature on stolen cheques: Blank cheques are stolen from an organization and then used fraudulently by others such that original owner of the cheque or bank suffers a lost.

Reasons for Managers to Commit Fraud

1. Incompetent managers may deceive to survive. Good manager keep abreast of change. In Mr Knowsome case there is computerised inventory control system that is not yet been installed by him because he believes that this would only increase his workload.

2. Profit centre may distort facts to hold off divestment. Mr Knowsome is three months late with his monthly reports. It can be that he is trying to distort financial figures in order to retain his position.

3. Performance may be distorted to warrant lager bonuses. It is also known that Mr Knowsome is working a lot of overtime to keep the creditors system, the bank reconciliation and inventory system of the branch up to date, despite sufficient stuff.


4. The need to succeed can turn manager to deception. When ambition and self-advancement are more important than solid accomplishment, some mangers will betray the stewardship pf the resources entrusted to them.

5. Profits may be inflated to obtain advantages in the marketplace. The financial officers who want their organisation’s stock to make a splash in the market to cash in stock options, or seek to obtain unwarranted credit lines, may inflate profits unfairly.

6. Organisations publicise estimates of future sales level, marker share, income and stock performance to the financial market. When any of these performance measures cannot be reached, aggressive accounting is in use to achieve the required result.

Four Common Reactions to Fraud

Good: Some fraudsters may feel good because they think they have beaten the organisation’s system and got away with it.

Indifferent: Some fraudsters will have an indifferent feeling, those who have a indifferent feeling are not likely to talk about their feats or brag to anyone, they will also show no behaviour peculiarities.


Guilty: Some fraudsters will have feelings of guilt. Conscientious employees, particularly those with strong and stable family backgrounds, those who have strong religious convictions. These employees are more likely not to talk to anyone about their deed. This will increase their stress levels, which will manifest in changing behaviour patterns.

Fear: Those who fear discovery will not brag about their exploits. They will not display constant or regular behaviour peculiarities, but they will react strongly to specific circumstances, especially when they think that they are on the verge of being discovered.