Fraudulent Financial Reporting: How Do We Close the Knowledge Gap?

By Joseph Carcello and Dana Hermanson @ Institute for Fraud Prevention.

Excerpt: 

We extend the fraud triangle by including a fourth element, the capability of the potential fraud perpetrator that is cited by Wolfe and Hermanson (2004). By adding the capability to commit fraud to the model – expanding the fraud triangle to the fraud diamond – we recognize that although an individual may have an incentive to commit fraud, an opportunity to commit fraud may exist, and the individual may be able to rationalize the behavior, fraud will not occur unless the potential perpetrator has the personal capability (knowledge, skill, position, ability to handle stress, etc.) to commit the fraud. In other words, the potential perpetrator has to have the right skills to recognize and exploit the generic fraud opportunity. With this fraud diamond framework in mind, the sections below present issues worthy of additional research. We also discuss the data sources needed to close our FFR knowledge gap.

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