La organización y la formación

Opportunity in fraud triangle has always been associated with the internal control and is a mandatory element to perpetrate and conceal fraud(Schuchter & Levi, 2015). Fraud can happen when one of these three elements namely opportunity, pressure and rationalization capability and behavioural trait exist together or separately in an individual or a group of individuals. Chen and Elder (2007) used three proxies based on TSAS 43 to measure opportunity including related party transactions, CEO duality and difference between control and cash flow rights. Moyes, Lin and Landry (2005) surveyed amongst 77 internal auditors and found that the presence of related party transactions has the second rank amongst various opportunity risk factors. Wilks and Zimbelman (2004) investigated 52 audit managers and suggested that related party transactions had third place amongst six factors. Ming and Wong (2003) also used this proxy to measure the opportunity. But for the purpose of this study,

58 related party transaction; weak internal control; and rapid growthwere used to assess the opportunity elements in a fraud pentagon model.

Statement on Auditing Standards No. 99 AU Section 316 provides examples of risk factorsthat may increase the opportunity to commit financial statement fraud (AICPA 2002).

These riskfactors include:

i. The nature of the industry or the entity‘s operations such as significant complex orrelated party transactions;

ii. Ineffective monitoring of management;

iii. A complex organizational structure such as one that involves several legal entities;

iv. Ineffective controls due to a lack of monitoring of controls or circumvention of controls;

v. Ineffective means of communicating and supporting the entity‘s accountability for public resources and ethics;

vi. Lackoftransaction authorization;

vii. Poor accounting record;

viii. Lack of physical control;

ix. Lack of audit trail;

x. Lack of mandatory vacation of employee in key control function;

xi. Lack of establish policies or controls related to investment risk;

xii. Breakdown of procedure such as inappropriate computer access, ineffective physical inventories;

xiii. Lack ofsegregation of duties; and xiv Failure to discipline perpetrators.

59 Albrecht and Albrecht (2003) also discuss factors increasing the opportunity to commit fraud and note that having an effective control structure is probably the single most important step to eliminate or minimize opportunity to commit fraudulent acts.

Hogan, Rezaee, Riley, and Velury (2008)survey audit partners that have had experience with financial fraudand find that dominated decisions by management and weak internal controls are the primaryconditions that increase the opportunity for fraud. Moutinho and Smith (2000) examine a model where thestrength of internal controls is inversely related to the propensity of a manager to commit fraud. Intheir model, the auditor‘s assessment of the control system affects their allocation of effort betweencontrol testing and substantive testing, but the likelihood of detecting the fraud does notincrease when the auditor exerts effort to assess controls.

Also, study by Omar and Mohamad-Din (2010) show that the government auditors perceive an opportunity 'red flags' as an important fraud indicator. Smith, Omar, Sayd Idris, &

Baharuddin (2005) have also suggested that opportunity is an important element in assessing fraud risk. Opportunity is a manipulation of internal controls by an individual who wanted to commit fraud, concealing fraud and avoid being punished. An opportunity influences criminal behaviour. For example, if an employee is facing financial pressure but has no opportunity to commit fraud due to a good internal control, then the fraud risk would be low.

However, if the internal control is weak, then the fraud risk would be high. The employees can create an opportunity to commit fraud by colluding with another employee (LaSalle, 2007). Therefore, understanding the opportunity in the fraud triangle is necessary since prior studies have shown opportunity as a mandatory element for fraudsters to commit fraud.

60 2.1.15Effect of Rationalization and their Proxy on Fraud

Rationalization is a factor often viewed as out of the control of management and internal auditors because individual who commit fraud justify their action as being consistent with their own personal code of ethics. This is often a function of the fact that those who are trusted are placed in positions where fraud may be committed. Level of ethical principles varies greatly among individual. Based on this, internal auditors should exercise pre-mortem strategy since fraud is typically committed by those we trust.

Some of the rationalizations that often associated with fraud include:

Low self-esteem or morale:

i. Desire to seek revenge:

ii. Feeling of being underpaid;

iii. Nobody will get hurt;

iv. Belief of being overwork;

v. Feeling that everybody else is doing it; and vi. It is only a loan and will be paid back.

Employee can often be reminded that no justification exists for illegal activities. The internal auditors should review and monitor on-going program that maintain an ethical foundation for the organizations employee. It follows therefore that successful prevention of fraud in an organization lies in the isolation of the perpetrator from the assets and from the opportunity and knowledge required for access. In order words, walls of policies, procedures devices and control need to be erected to surround and isolate each factor in the equation to combat fraud.

It is for this reason that the system of internal control is identified as very critical in minimized the incidence of fraud banking industry.

61 2.1.16Effect of Capability and their Proxyon Fraud

Capability can be viewed as situation of having the necessary traits or skills and abilities for the person to commit fraud. It is where the fraudster recognized the particular fraud opportunity and ability to turn it into reality. Position, intelligence, ego, coercion, deceit, and stress, are the supporting elements of capability (Wolfe and Hermanson 2004). According to Mackevicius and Giriunas (2013), not every person who possessed motivation, opportunities, and rationalization may commit fraud due to the lack of the capability to carry it out or to conceal it. Wolfe and Hermanson (2004) maintained that opportunity opens the doorway to fraud, and pressure and rationalization lead a person toward the door. However, capability enables the person to recognize the open doorway as an opportunity and to take advantage of it by walking through repeatedly.

According to Wolfe and Hermanson (2004) ―Theory of White Collar Criminals‖ states that, as fraudsters found themselves successful at a crime, they began to gain some secondarydelight in the knowledge that they are fooling the world; that they are showing their superiority to others. The individuals committing fraud must have a strong ego and great confidence that they will not be detected. The common personality types include someone who is driven to succeed at all costs, self-absorbed, self-confident, and often-narcissistic (Rudewicz, 2011). Albrecht, Williams, and Wernz (1995) as cited in Abdullahi, Mansor and Nuhu (2015) opine that this element is of particular importance when it concerns a large-scale or long-term fraud. Furthermore, Rudewicz (2011)believes that only the person who has an extremely high capacity will be able to understand the existing internal control, to identify its weaknesses and to use them in planning the implementation of fraud. . Similarly, Wilson (2004) discloses that rationalization and capability are all inter-related, and the strength of each element influences the others.

62 Wolfe and Hermanson (2004) stated that position and role owned by the employee may perfect his way to breach the organizational trust. Findings of the analysis of public companies carried out by Beasley, Carcello, Hermanson and Lapidesin 2001, revealed that over 70% of the fraud cases involved CEOs of the companies. They also reported that many organizations did not implement sufficient checks and balances to mitigate their CEO's capabilities to influence and perpetuate frauds. Also, managers or executives committed 46%

of the frauds based on the Association‘s recent study. The fraudster has a strong ego and great confidence that he will not be detected, or believes that he could easily take himself out of trouble if caught. Such confidence or arrogance can affect one's cost-benefit analysis of engaging in fraud. The more confident the person, the lower the estimated cost of fraud will be (Wolfe and Hermanson, 2004). In an article entitled, "The Human Face of Fraud" it is noted that one of the common personality types among fraudsters is the ego. An egoistic person refers to someone who is driven to succeed at all costs, self-absorbed, self-confident and narcissistic admiration and a lack of empathy for others(Duffield and Grabosky, 2001).

Individuals with this disorder believe they are superior or unique, and they are likely to have inflated views of their own accomplishments and abilities