Fraud and the Fraud Triangle definitions Flashcards
Fraud and the Fraud Triangle definitions
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Fraud Any dishonest act by an employee for personal gain at the expense of the employer, often involving theft or falsification. Fraud Triangle A model outlining the three essential elements—opportunity, incentive, and rationalization—required for fraudulent behavior. Opportunity A situation where an employee perceives a chance to commit fraud, often due to weak controls or oversight. Incentive A motivating factor, such as financial pressure or desire for luxury, that drives an employee to commit fraud. Rationalization The mental process by which an employee justifies dishonest actions, often citing unfair treatment or personal hardship. Internal Controls Systems and procedures within a company designed to safeguard assets, ensure reliable records, and promote legal compliance. Asset Safeguarding Measures implemented to prevent unauthorized access to or removal of company resources like cash or inventory. Financial Information Reliability The accuracy and trustworthiness of a company's financial records, enhanced by effective internal controls. Compliance Adherence to laws and regulations, often ensured through company policies and internal procedures. Cash Register A point-of-sale device that must be monitored and reconciled regularly to prevent and detect theft. Inventory Goods or materials held by a company that can be targets for theft or misappropriation in fraudulent schemes. Fake Invoice A falsified billing document created to illicitly divert company funds, often appearing legitimate if unchecked. Policy A formal guideline or rule within a company that directs employee behavior and supports internal controls. Procedure A specific method or process established to ensure tasks are performed correctly and consistently, reducing fraud risk.
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