Description
Option #1: Fraud Triangle and Red Flags
Read the following scenario:
Webmasters was an Internet start-up company founded in 2016. One of the largest problems for Webmasters was developing the technological systems necessary to support its 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 questionable data integrity. As a result, the CEO of Webmasters announced an initiative to integrate all systems and increase the quality of internal data. In compliance with this initiative, Webmasters purchased an expensive and complex billing system called BillPro, which would automate the billing for thousands of Internet accounts via credit cards.
During the integration, BillPro, 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 BillPro 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.
Tyler, 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 BillPro system. As a result, Tyler 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 Ethan. Ethan 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. Ethan was the most technologically savvy individual on the team, and his overall systems knowledge exceeded that of his manager, Tyler. Ethan was brilliant in creating more efficient tools and methods to repair corrupted accounts. Therefore, Ethan 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. Tyler 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 Webmasters, Ethan received an official reprimand from the company for using the company system to access websites containing pirated software and music. The FBI attended the investigation and determined that Ethan had not been a major player in the piracy. Therefore, Ethan was quietly warned and placed on a short-term probation. Tyler was asked to write a warning letter for the action; however, after a brief conversation with Ethan, Tyler determined that Ethan's intentions were good and Tyler never officially submitted the letter because Ethan was a trusted employee and elevated the overall performance of the team.
A few months after the piracy incident, Tyler noticed some changes in Ethan's behavior:
- Ethan's computer monitor was repositioned so that his screen was not visible to coworkers.
- Ethan had the latest technological innovations including a new smartphone, an MP3 player, a Play Station, a new laptop, a tablet and a new car stereo system.
- Ethan was going out to lunch more frequently.
- Ethan frequently used multiple fake usernames and passwords for testing purposes.
Explanation & Answer
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Outline
Title Page
1
Introduction
2
The Fraud Triangle
2
Red Flags
4
Fraud Prevention
4
Conclusions
6
References
7
FRAUD TRIANGLE AND RED FLAGS
Fraud Triangle and Red Flags
Name of Student
Institution Affiliation
Page |1
FRAUD TRIANGLE AND RED FLAGS
Page |2
Introduction
Ethan apparently committed fraud and misappropriated assets that belong to Webmasters,
his current employer. There are several elements that contributed to Ethan’s apparent unlawful
behavior including inadequate corporate structure and pay, and the lack of internal control
systems. Even though no control system is 100% accurate all the time; it is important to
understand the reasons why someone commits fraud in order to learn how to prevent the same
type of fraud from happening again.
The Fraud Triangle
The Fraud Triangle was developed by Donald Cressey in 1953 and remains as the most
widely accepted theory to explain why fraud occurs. There are three elements that Cressey
described had to exist in order for fraud to occur and not be detected immediately (Wells, 2001):
a) Pressure or incentive to commit fraud. In order for any crime to be committed, and
fraud is a crime, there must be some type of incentive for the fraudster to commit the
crime. People don’t go around doing bad things just because they can; people commit
crimes because they gain something from their illegal actions. Most cases related to
fraud are correlated with material gains, in other words, earning money illegally. In
this specific case, Ethan was earning a low salary and needed the work to support his
family. He had a huge incentive for committing fraud since he could make more
money for himself and his family and improve their standard of living.
b) Opportunity. Ethan was the most technologically savvy employee and he was
assigned the task to clear corrupt accounts that were created when the new billing
sys...
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