Question

There are three elements present for every fraud that is committed: Opportunity (a favorable situation), Motivation (the need for something), and Rationalization (justifying the act at some level)

1. Give an example for each of these elements when fraud regarding cash has been committed. For example, what could be an example of opportunity, motivation, and rationalization in a fraud that involved cash.

2. How would the internal controls be used to counteract or diminish the recurrence of the fraud?

Answer 1

1.

A real life example comes to mind for this.

It was back in 2017. A new girl was hired to handle company cash. The outgoing employee was taking a break to look after her children. The new girl performed very well. She was exceeding expectations right from the first month.

The manager started trusting her. Taking advantage of this trust she started embezzelment of cash.

She had opportunity all the time because of lack of controls and manager's blind trust.

She had motivation because her husband had lost his job and they were behind on rent.

The rationalization was that she was paid less than the previous employee, so the company owed it to her.

2.

The following controls could have mitigated the situation

1. Surprise and periodic cash counts
If there was another employee performing surprise as well as periodic cash counts such a thing would have been identified in the very first instance of occurence.

2. Maker and checker control
Cash expenses file should have had a reviewer check after every period end.

3. Invoice checks
All the petty cash invoices should have been properly reviewed by the manager.