Elements of the Fraud Triangle Essay Example

fictitious contracts and having the people in your network lend credibility when being audited helps a person to generate paper profits and revenue streams to show, on paper at least, that the company is growing by leaps and bounds. The next step is to expand the initial cutthroat business to other areas, leading the public to believe that through expansion, the company shows signs of flourishing, while continuing with the fake contracts of a new phase of business, in this case, estoration. Once the company shows strong financial statements, albeit personally held, it proves to the banks that the company is growing and is adding business lines it becomes evident that there is not a need to nickel and dime it in the original business, but seeing as how the new business lends it self to easier and greater rewards through fraud, this will be the path to gain more and more riches for one’s self.With these conditions of fraud now in place, there is a new pressure that emerges, and that is of keeping up status for those that have placed you on a pedestal as a model businessman. That coupled with how easy it has become to get financed through fraud, there is no turning back now.

The second element in the fraud triangle is Opportunities. Opportunities- As mentioned above in Incentives/Pressures, the opportunities have presented themselves in such a way that to not exploit them would seem criminal in and of its self.There is a need that has arisen to hold steady the influx of funds into this business and through fraud; we are able to do so and very successfully. The

initial wave of contracts has gotten the company to an excellent standing in the community and has garnered national attention in the form of showcasing an American success story as the youngest CEO in the nation with a hugely successful business. From this point, it only makes sense to take the company public.This would allow the company to rake the pockets of Americans all over the nation who foolishly invest in this fictitiously funded company.

The opportunity to further pull the wool over the eyes of the auditors has become easier and easier as one has become privy to the ease of exploiting an auditing weakness, and that is difficulty in evaluating accounts receivable for a company that amounts to being a service oriented company.Service Revenue is easily manipulated by fictitious contracts that allow the auditor to be susceptible to fraud. Even as the auditor takes the necessary steps to visit one of the sites in which the company has claimed that work is being done, it is easy to pull off a charade by simply bribing and lying to a construction supervisor who is in charge of redoing a building. We simply have two of our confidantes pose as leasing agents, and that they represent a large client whom would like to view the premises for possible purchase.We then get access to the building, post signs up stating that we are doing the work there and make sure the person who is in charge of security is up to date with who the person really is and what we are doing there in the building. It doesn’t take much to get people to do

what we want, simply offer them cash and many are willing contributors to our cause.

This is one example of many of the opportunities that were available to ZZZZ Best Company back in the 1980’s before Sarbanes Oxley made changes to the accounting and auditing rules.Is there a better way to perpetrate this fraud? If there is, describe your method. I have read this case several times and there are a number of ways that Minkow could have done differently. First, is to be aware of threatening situations. You must be aware of human emotions and the possibility for revenge and retribution. While in his infancy of committing fraud, Minkow stole money from a woman through credit card fraud.

She tried several times to get restitution from ZZZZ Best, but she never did obtain it.This was the downfall of Minkow and of ZZZZ Best as she was so outraged by this slight that she gathered information from other people with whom were subjected to the same type of theft and she journalized it all in a diary. Minkow must have gotten to a point in his career of theft that he didn’t care about such a small instance and felt powerful and that he couldn’t be touched. After all, he did appear at one point in time on Oprah and gave inspiration to millions about how to live their lives. This was a mistake as he should have been aware of all threats, assessed them as such, and then did what he needed to do to correct them.The other thing that he might have done better was to be prepared for the auditors.

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about the standards that are in place and to become more astute at the details, not discouraging them to follow through with their requests. That is a red flag immediately. I would have been more cautious and done more research on the amounts that I was reporting for restoration jobs, as they were enormous, as I will describe further in my recommendations for the client to prevent fraud. The amounts I would have used would have been smaller but more frequent.I would have made it appear that business was increasing with many jobs rather than ones that were disproportionately large in size. Greed was surely a factor as Minkow used high dollars and many, many contracts.

Specify practical recommendations for the client to prevent this fraud from occurring in the future. Care must be met in realizing that the amount of money involved in the contracts that ZZZZ Best were reporting on their income statements were disproportionately large as compared to that of the industry.Do more research into that angle and figure out if these amounts are realistic or not. The number of job claims that ZZZZ Best was reporting was excessive in relation to the national number available at that period of time. Again, research is in order here to look into the national numbers and see what they are in relation to this or any company that you are serving.

There were a number of factors overlooked that I would say are obvious.These are infractions that violate standard policy across the board and that include not naming a specific payee but rather ZZZZ Best themselves. This is clearly incorrect. Also, the contracts lacked

detail and consisted of one page and were named to the same party. I would have seen these and immediately have done due diligence to get to the bottom of these curious practices.

They scream of the possibility for fraud as well as poor policy by ZZZZ Best and a lack of internal controls that should always be reviewed and brought to light.The auditors as well as the SEC are at fault in not realizing that every time major contracts were “awarded” to ZZZZ Best they proceeded a planned offering of stock. Bolstering the company’s outlook in order to attract new investors. This should be reviewed and marked as a red flag.

Finally, I would have done more due diligence in reviewing the financial statements of ZZZZ Best. They were way outside the borders of the average restoration company in the United States. Anytime a company is growing at such an abnormally large rate, the auditor must investigate further to see if fraud is present.