Fraud Triangle Not Good Enough
Playing Offense in a High-risk Environment
Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four ®
Playing Offense in a High-risk Environment
“Today’s fraudster is clever and operates in an environment ripe for criminal activity. Economic unrest is making it easier for employees to find ways to set fraud in motion – and a new breed of offenders is finding cunning ways to do so. After more than 60 years, the classic fraud triangle of three elements or events that motivate an employee to cross the line has morphed
™ into Crowe’s Fraud Pentagon. Company boards and
senior management must take an offensive stance against the five conditions that precipitate fraud with a clear plan that limits the opportunity for fraud and minimizes the impact when fraud does occur.”
Jonathan Marks, Partner-in-charge, fraud and ethics practice Crowe Horwath LLP
www.crowehorwath.com
3
Crowe Horwath LLP
Then and Now 1950s
Straight-line reporting authority Dual responsibility Single suppliers Local or regional service area Step-up salary structure CEO as businessman Businesses led by owners
2000s
Matrix organizations Autonomous authority Multiple vendors and global trading partners Global reach Performance-based pay CEO as celebrity Businesses led by managers and directors
Issues
With the economic downturn forcing budget cuts, reorganizations, and work force reductions, the pressure on corporations and key individuals to meet performance targets is elevated. So too is the risk of fraud. Each corporate change presents yet another opportunity for individuals to slip in undetected and override controls in their quest to meet performance targets, pad their pockets, or prime the machine for corporate advancement. The cost of fraud can be astronomical. Twenty years ago, when ZZZZ Best Co. Inc., founder Barry Minkow lied, stole, and cheated his way to higher stock prices, the cost to investors was about $26 million. Today,
Audit | Tax | Advisory | Risk | Performance
The Unique Alternative to the Big Four ®
Playing Offense in a High-risk Environment
“Today’s fraudster is clever and operates in an environment ripe for criminal activity. Economic unrest is making it easier for employees to find ways to set fraud in motion – and a new breed of offenders is finding cunning ways to do so. After more than 60 years, the classic fraud triangle of three elements or events that motivate an employee to cross the line has morphed
™ into Crowe’s Fraud Pentagon. Company boards and
senior management must take an offensive stance against the five conditions that precipitate fraud with a clear plan that limits the opportunity for fraud and minimizes the impact when fraud does occur.”
Jonathan Marks, Partner-in-charge, fraud and ethics practice Crowe Horwath LLP
www.crowehorwath.com
3
Crowe Horwath LLP
Then and Now 1950s
Straight-line reporting authority Dual responsibility Single suppliers Local or regional service area Step-up salary structure CEO as businessman Businesses led by owners
2000s
Matrix organizations Autonomous authority Multiple vendors and global trading partners Global reach Performance-based pay CEO as celebrity Businesses led by managers and directors
Issues
With the economic downturn forcing budget cuts, reorganizations, and work force reductions, the pressure on corporations and key individuals to meet performance targets is elevated. So too is the risk of fraud. Each corporate change presents yet another opportunity for individuals to slip in undetected and override controls in their quest to meet performance targets, pad their pockets, or prime the machine for corporate advancement. The cost of fraud can be astronomical. Twenty years ago, when ZZZZ Best Co. Inc., founder Barry Minkow lied, stole, and cheated his way to higher stock prices, the cost to investors was about $26 million. Today,