A Science in itself and presence throughout all the economies, very little research has been done in the area of forensic auditing as compared to pervasiveness and impact of the frauds but still people mentioned below have contributed to what it is now.
1. Edwin H. Sutherland(1883-1950)– Crime is learned
Sutherland was particularly interested in fraud committed by the elite upper- world business executive, whether against shareholders or against the public- he coined the word white collar crime in 1939.
For the uninitiated, Sutherland is to the world of white-collar criminality what Freud is to psychoanalysis. Sutherland developed the theory of differential association, which is now the most widely accepted theory of criminal behavior. Until Sutherland’s landmark work in the 1930s, most criminologists and sociologists held the view that crime was genetically based- that criminals beget criminal offspring.
Sutherland was able to explain crime’s environmental considerations through the theory of differential association. The theory’s basic tenet is that crime is learned, much as are math, English, and guitar playing.
Sutherland believed that learning of criminal behavior occurred with other persons in a process of communication. Therefore, he reasoned, criminality cannot occur without the assistance of other people. Sutherland further theorized that the learning of criminal activity usually occurred within intimate personal groups. In his view, this explains how a dysfunctional parent is more likely to produce dysfunctional offspring.
2. Donald R. Cressey(1919-1987) – Trust Violators – Fraud Triangle
One of Sutherland’s brightest students at Indiana University during the 1940s was Donald R. Cressey. Working on his doctorate in criminology, he decided to concentrate on embezzlers, whom he called “trust violators”. He was especially interested in the circumstances that led them to be overcome by temptation.
Cressey’s final hypothesis was:
Trusted persons become trust violators when they conceive of themselves as having a financial problem which is nonsharable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.
Over the years, the hypothesis has become better known as the fraud triangle.
3. Dr. W. Steve Albrecht – Fraud Scale
Albrecht was educated as an accountant. Steve was helpful in commencing the CFE program, and his research contributions in fraud have been enormous. He and two of his colleagues, Keith Howe and Marshall Romney, conducted an analysis of 212 frauds in the early 1980s under a grant from the Institute of Internal Auditors Research Foundation, leading to their book Deterring Fraud: The Internal Auditor’s Perspective.
The Albrecht study suggests there are three factors involved in occupational frauds:
· a situational pressure (nonsharable financial pressure),
· a perceived opportunity to commit and conceal the dishonest act ( a way to secretly resolve the dishonest act or the lack of deterrence by management), and
· some way to rationalize (verbalize) the act as either being inconsistent with one’s personal level of integrity or justifiable.
To illustrate this concept, Albrect developed the “Fraud Scale” which included the components of situational pressures, perceived opportunities, and personal integrity. When situational pressures and perceived opportunities are high and personal integrity is low, occupational fraud is much more likely to occur than when the opposite is true.
4.Richard C. Hollinger - Hollinger- Clark Study – Employee deviance
In 1983, Richard C. Hollinger of Purdue University and John P. Clark of the University of Minnesota published federally funded research involving surveys of nearly 10,000 American workers.
They concluded Employee deviance is mainly caused by job dissatisfaction. They believed management must pay attention to four aspects of policy development;
· Clearly understanding theft behavior
· Continuously disseminating positive information reflective of the Company’s policies.
· Enforcing sanctions
· Publicizing sanctions
(Author CA Piyush Baranwal, DISA, Certified FAFP(ICAI),Certified in International
Taxation(ICAI) can be reached at firstname.lastname@example.org or 9818133880)