Option 1: Fraud Triangle And Red Flags - Read The Following

Option 1 Fraud Triangle And Red Flagsread The Following Case Study

Option #1 - Fraud Triangle and Red Flags Read the following case study and respond according to the instructions at the end: Plutonium was an Internet start-up company founded in 1988 at the beginning of the technology boom. One of the largest problems for Plutonium was developing the technological systems necessary to support the rapidly expanding user base. Furthermore, due to the rapid expansion in recent years, many of its systems had been added hastily, resulting in poor integration and eroding data integrity. As a result, the Chief Operating Officer of Plutonium announced an initiative to integrate all systems and increase the quality of internal data. In compliance with this initiative, Plutonium purchased an expensive and complex billing system called Gateway, which would automate the billing for thousands of Internet accounts via credit cards. During the integration, Gateway, in collaboration with Visa, created a phony credit card number that could be used by developers and programmers to test the functionality and integration of the Gateway system. Moreover, this credit card number was fully functional in “live” environments so testers and developers could ensure functionality without being required to use actual personal or company credit card numbers. The activity on this card was not monitored. The integration went smoothly; however, it created thousands of corrupt accounts that required fixing. Jonathan, the manager of the Operations Department, was responsible for the resolution of all data integrity issues. His team was tasked with fixing all corrupt accounts created by the launch and integration of the Gateway system. As a result, Jonathan was given the phony credit card number, which was kept on a Post-it Note in his drawer. One of the top performers on the Operations team was a 29-year-old male named Chris. Chris had worked in Operations for more than a year and was making $15 per hour, the same salary as when he was hired. He was an introvert working to support a family and put himself through school. Chris was the most technologically savvy individual on the team, and his overall systems knowledge exceeded that of his manager, Jonathan. Chris was brilliant in creating more efficient tools and methods to repair corrupted accounts. Therefore, Chris was tasked with conducting training for new employees and updating team members on new processes and tools that he had created. As a result, he quickly became a trusted and valuable team member. Jonathan gave him, and the other team members, the phony credit card number to increase the productivity of the team. However, after six months of working at Plutonium, Chris received an official reprimand from the company for using the company system to access Web sites containing pirated software and music. The Federal Bureau of Investigation conducted an investigation and determined that Chris had not been a major player in the piracy. Therefore, Chris was quietly warned and placed on a short-term probation. Jonathan was asked to write a warning letter for the action; however, after a brief conversation with Chris, Jonathan determined that Chris’s intentions were good and never officially submitted the letter because Chris was a trusted employee and elevated the overall performance of the team. A few months after the piracy incident, Jonathan noticed some changes in Chris’s behavior: · Chris’s computer monitor was repositioned so that his screen was not visible to coworkers. · Chris had the latest technological innovations including a new smartphone, an MP3 player, a PlayStation, a new laptop, a tablet, and a new car stereo system. · Chris was going out to lunch more frequently. · Chris frequently used multiple fake usernames and passwords for testing purposes.

Analyze this case using the three elements of the fraud triangle. Address the following five points in your response: 1. What potential pressures exist that might cause Chris to commit fraud? 2. What opportunities does Chris have for committing fraud? 3. What are some rationalizations that Chris might have to excuse committing fraud? 4. What are some of the symptoms suggesting that fraud might exist in this situation? 5. What could Jonathan have done to eliminate some, or all, of the opportunities for fraud? Your paper must be in a Word document of three to five pages in length. Cite at least two resources supporting your responses, other than the course textbook. The CSU-Global Library is a good place to find these resources. Format your paper in accordance with CSU-Global Guide to Writing and APA Requirements .

Paper For Above instruction

The case involving Plutonium, an internet startup from the late 1980s, provides a compelling scenario to analyze fraud through the lens of the fraud triangle, which encompasses pressures, opportunities, and rationalizations. The situation centers around Chris, a technically adept employee, who manipulates system resources and behaviors that suggest potential for fraudulent activity. Understanding each element of the fraud triangle elucidates how internal controls and ethical considerations can prevent or allow such misconduct.

Potential Pressures that Might Cause Chris to Commit Fraud

Pressure in the context of fraud refers to the motivation or incentive to engage in dishonest activities. Chris’s situation is characterized by multiple internal and external pressures. Firstly, financial strain acts as a significant motivator; despite his contributions and skills, his salary of $15 per hour may not sufficiently support his family or his educational expenses, leading to financial stress (Dellaportas, 2014). Additionally, Chris’s purchase of numerous high-end technological devices such as a smartphone, MP3 player, and laptop indicates a desire to acquire extrinsic rewards or status symbols often associated with success. These consumer behaviors can suggest underlying financial pressures or aspirations that might tempt him toward fraudulent acts.

Furthermore, the recent reprimand related to piracy warnings could have inadvertently increased his sense of pressure; feeling scrutinized may have heightened stress, creating a perceived necessity to demonstrate his value or loyalty through extraordinary means. No longer fully monitored, his increased usage of fake usernames for testing purposes also hints at trying to justify or rationalize activities that could border on misconduct.

Opportunities for Committing Fraud

The opportunities available to Chris derive from system access, the nature of his job, and procedural gaps. His possession of the phony credit card number, which previously was kept on a Post-it note, significantly increases the likelihood of misuse. Since this number was used to generate corrupt accounts, Chris had direct access to manipulate data and potentially commit fraud without immediate detection.

Moreover, his role involved repairing corrupted accounts—an area where he could alter data or bypass controls if necessary. The use of multiple fake usernames and passwords for testing creates a further loophole that he could exploit for fraudulent purposes. The repositioning of his monitor so that his activity isn't visible fosters an environment conducive to secretive behavior, making it easier to commit fraud undetected (Albrecht et al., 2019).

Rationalizations Supporting Fraudulent Behavior

Rationalizations refer to the psychological justifications employed to reconcile dishonest actions with personal morals. Chris may rationalize his behavior through a sense of entitlement, believing that he deserves more compensation or benefits commensurate with his contributions and skills. His access to high-end devices and the desire to improve his lifestyle could foster a belief that he is underpaid or undervalued, justifying theft or data manipulation as a form of compensation.

Another common rationalization involves the perception that the company’s systems or management are negligent or unappreciative, thus framing any misconduct as a form of retribution or a corrective measure. The fact that Jonathan chose not to submit a formal warning after the piracy incident might contribute to a distorted sense of leniency, further justifying misconduct (Schwartz et al., 2017).

Symptoms Suggesting Fraud Might Exist

Indicators of potential fraud include behavioral and systemic signs. Chris’s repositioned monitor may be symptomatic of attempts to hide activities. His sudden acquisition of high-tech gadgets and increased lunch outings can be seen as signs of lifestyle changes motivated by extra income. Additionally, his use of multiple fake usernames indicates secretive testing activities that could be deceptive.

Furthermore, the change in his behavior post-reprimand, coupled with the fact that he was never formally disciplined for piracy, might suggest guilt or an attempt to conceal misconduct. The fact that he is working more covertly aligns with known fraud red flags, such as secretiveness and lifestyle enrichment beyond means.

Measures Jonathan Could Take to Eliminate Opportunities

To mitigate opportunities for fraud, Jonathan could implement several controls. Firstly, securing access to sensitive data by limiting system privileges—such as restricting the use of the fake credit card number and monitoring its activity—would reduce misuse risk. Regular audits of account activity and reconciling system changes could help detect anomalies early (Crumbley et al., 2018).

Secondly, establishing strict policies around the use of testing accounts and implementing dual control procedures would ensure that no single employee has unchecked access to alter critical data. Continuous monitoring of employee behaviors, such as the repositioning of monitors and frequent system access, can also serve as deterrents to fraudulent activity.

Finally, fostering an ethical workplace culture that emphasizes the importance of integrity and provides whistleblowing channels may encourage employees to report unethical behaviors before they escalate into fraud. Training employees to recognize red flags and promoting transparent communication within teams could further reduce opportunities for misconduct.

Conclusion

The case of Chris and Plutonium illustrates the significance of understanding the fraud triangle—pressures, opportunities, and rationalizations—in preventing fraudulent activities within organizations. Recognizing symptoms and vulnerabilities allows management to create robust internal controls, support ethical behavior, and prevent potential fraud before it manifests. Effective oversight, employee engagement, and a culture of integrity remain essential tools in mitigating risk and safeguarding organizational assets.

References

• Albrecht, W. S., Albrecht, C. C., Albrecht, C. O., & Zimberg, J. A. (2019). Fraud examination. Cengage Learning.
• Crumbley, D. L., Heitger, L. E., & Smith, G. S. (2018). Forensic and investigative accounting. Cengage Learning.
• Dellaportas, S. (2014). Ethical dimensions of forensic accounting. Routledge.
• Schwartz, R., Clark, R., & Barefield, P. (2017). Financial statement fraud: Strategies for detection and investigation. Wiley.
• Association of Certified Fraud Examiners. (2022). Fraud prevention and deterrence strategies. ACFE.
• Rhodes, D. (2016). Internal control and fraud prevention. Journal of Business Ethics, 134(2), 265-278.
• Huang, C., & Fan, Y. (2018). Behavioral red flags of fraud in organizations. Journal of Forensic & Investigative Accounting, 10(3), 238-255.
• Rezaee, Z. (2016). Financial statement fraud: Prevention and detection. Journal of Forensic & Investigative Accounting, 8(3), 220-245.
• Wells, J. T. (2019). Principles of fraud examination. Wiley.
• Laskin, M., & Noe, R. (2017). Internal controls and fraud risk management. Internal Auditor, 74(4), 31-36.