A decade had passed since Enron collapsed and yet fraud remains a major international problem. Efforts have been made to fully identify the types of fraud for prevention and investigation purpose without success as there appears to be new kind of fraud emerging every day. This has created a high demand for forensic accounting skills globally ( Kranacher
Fraud has been in existence for generations. For example, the so-called “financial scandals” have plagued the world's economy since before the Industrial Revolution ( Pearson and Singleton, 2008 ). Many of the scandals (such as that of the equity funding in 1970 where computers were used to as a means in perpetrating fraud) became milestones with historical importance in our journey in combating fraud ( Pearson and Singleton, 2008 ). According to the Black's Law Dictionary (2009) , fraud is:
A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment […] A misrepresentation made recklessly without belief in its truth to induce another person to act.
As argued by Ramamoorti (2008, p. 522) :
Fraud involves intentional acts and is perpetrated by human beings using deception, trickery, and cunning that can be broadly classified as comprising two types of misrepresentation:
The essential part of any fraud is the use of deception to obtain benefits. As defined by Wells (2005, p. 8) , four general elements must be present for an offence to be called “fraud”:
Often mentioned as white collar crime, losses from fraud have been estimated by the ACFE's global study to be around $3.5 trillion in 2011 alone ( Association of Certified Fraud Examiners, 2012b, p. 4 ). In this study, asset misappropriation is considered as the most common fraud category with 87 percent of reported cases during the study period ( Association of Certified Fraud Examiners, 2012b, p. 4 ). According to the study, the most costly type of fraud is financial statement fraud which, despite making only 8 percent of the cases in the study, it caused median loss of $1 million ( Association of Certified Fraud Examiners, 2012b, p. 4 ).
Over half a decade ago the term “white collar crime” was not largely known even among criminologists and sociologists. Edwin H. Sutherland was credited as the first and criminologist who integrated crimes of the upper white collar class with economics and business activity ( Dorminey
The criminal statistics show unequivocally that crime, as popularly conceived and officially measured, has a high incidence in the lower class and a low incidence in the upper class; less than two percent of the persons committed to prisons in a year belong to the upper class […] The criminologists have used the case histories and criminal statistics derived from these agencies of criminal justice as their principal data. From them, they have derived general theories of criminal behavior. These theories are that, since crime is concentrated in the lower class, it is caused by poverty or by personal and social characteristics believed to be associated statistically with poverty, including feeblemindedness, psychopathic deviations, slum neighborhoods, and “deteriorated” families. This statement, of course, does not do justice to the qualifications and variations in the conventional theories of criminal behavior, but it presents correctly their central tendency.
Sutherland's apprentice, Donald Cressey, later proposed, based on his PhD study, what is now known as the Fraud Triangle in which he believed that fraud is a convergence of three factors, pressure or motivation, opportunity, and rationalization ( Cressey, 1950 ). In his original work, Cressey used the term “trust violation” in describing the offence in question – embezzlements. For his PhD study, Cressey, in the late 1940s, interviewed nearly 200 incarcerated embezzlers, including convicted executives1. Despite formulated over a half-decade ago, Cressey's theory, currently known as the “Fraud Triangle”, remains highly regarded to date particularly in the discipline of forensic accounting. It provides explanations for many fraud related phenomenon.
From the pressure or motivation point of view, as suggested by various studies, greed has always been thought as a driving factor behind many fraud cases ( Prabowo, 2011c ). This is often seen in what is known as the “living beyond means” phenomenon. The 2012 global study by the ACFE, for example, put one's desire to life beyond means as a the most observable behavioral symptoms from fraud offenders ( Association of Certified Fraud Examiners, 2012b, p. 57 ). The offenders' lavish lifestyle is evidenced mainly by their personal assets such as large houses, fancy apartments, luxurious cars, top of the line jewelries, etc. The possession of such assets is part of what is known as the “conversion” element of the Fraud Element Triangle ( Albrecht
Opportunity for committing fraud may come from one's position in his or her organization that can be misused for obtaining unlawful benefits ( Dorminey