Scribd
Upload
246 views6 pages

4-Errors, Irregularities, Fraud

This document defines errors, irregularities, and fraud in a business context. Errors are simple mistakes that negatively or positively impact a business unintentionally. Irregularities intentionally violate procedures, such as selling items below cost. Fraud requires intentional deception for personal gain or harm and includes actions like employee theft. The fraud triangle explains that the risk of fraud increases when an individual faces pressure, can rationalize their actions, and sees an opportunity to commit fraud.

Uploaded by

mraliyah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
246 views6 pages

4-Errors, Irregularities, Fraud

This document defines errors, irregularities, and fraud in a business context. Errors are simple mistakes that negatively or positively impact a business unintentionally. Irregularities intentionally violate procedures, such as selling items below cost. Fraud requires intentional deception for personal gain or harm and includes actions like employee theft. The fraud triangle explains that the risk of fraud increases when an individual faces pressure, can rationalize their actions, and sees an opportunity to commit fraud.

Uploaded by

mraliyah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 6

Errors, Irregularities, Fraud

Errors
• Errors are simple mistakes. In the context of a business, errors are mistakes that can impact the
business in either a negative or a positive manner.
• They represent actions or decisions that someone, or something, made that is contrary to what
the standard procedure, or entity objectives, would have expected to be made.
• They are inadvertent, erroneous actions with no mal-intent of any kind.
For example:
• A cashier makes an error when s/he accidentally records the sale of 10 lbs of bananas as only 1
lb of bananas.
• An airplane mechanic creates an error when, due to insufficient training, does not properly
repair the airplane.
• A computer programmer creates an error when s/he accidentally enters incorrect code because
s/he was exhausted when s/he wrote it.
Errors
• Errors can also accidentally benefit the company. For example when a cashier
accidentally short-changes a customer by refunding $10 when s/he should have
refunded $20. This error will inadvertently result in the company having $10
more than it should have.
• Whether or not the impact of the error is positive or negative, it is still an error,
and in the larger, moral, perspective, I believe management has the responsibility
to minimize both.
Irregularities
• Irregularities occur when the normal, or appropriate, procedure for a given
situation is intentionally violated.
• For example, a cashier commits an irregularity when she purposely sells
$100 of steak to a friend for only $10.
• Irregularities can be office thefts, as noted in the diagram to the right, or
they can be intentional irregularities reported in the financial statements to
boost the company's share price.
• When the irregularity is committed for personal gain or to incur damage to
the entity, it also falls into the category of fraud (Links to an external site.).
For example, when employees' steal inventory from the company's
warehouse such would be an irregularity and would also be fraud.
• Management can reduce the risk of fraud by implementing a strong system
of internal controls.
Fraud
• Fraud as it relates to criminal law, which requires the intentional deception of
another to benefit oneself or to cause damage to another.
• When employees steal, they do it on purpose to benefit themselves (because
they will use it or sell it), or to damage the company (because the company will
have lost some of its assets); therefore, employee theft is a type of fraud.
Fraud Triangle
• Donald R. Cressey: the risk of fraud increases when the full "fraud triangle" is present.
• The fraud triangle includes the following three pieces:
• Pressure/Incentive - The perpetrator has some sort of motive or reason for committing the
fraud.
For example, the perpetrator might feel significant pressure due to personal financial concerns
caused by gambling, uncontrolled spending or significant medical costs.
• Rationalization - The perpetrator can somehow mentally justify (i.e. rationalize) his/her actions.
For example, in order to rationalize his/her behavior, the perpetrator might say "I am only
borrowing the money and will pay it back later".
• Opportunity - The perpetrator has some means of accessing the resources needed to commit
the fraud.
For example, the perpetrator might be a "trusted" employee into which the sole proprietor has
entrusted all accounting functions, such as receiving, recording, and reconciling customer
payments. In this case, the employee would have the opportunity to steal customer payments
and cover the theft up in the accounting records.

You might also like