Managing Fraud Risk: A Practical Guide for Directors and Managers

Control Inhibitors and Concealment Strategies

Introduction

As we have seen, the Fraud Triangle established three characteristics which are always present in occupational fraud schemes: motive, opportunity and rationalisation. The second leg of the Fraud Triangle, (opportunity) has two components parts: the fraudster needs to have both the opportunity to commit the crime and also the opportunity to conceal the crime. He or she does not want to get caught and receive a prison sentence. So, the fraudster is always looking for weaknesses to exploit in the internal control system and ways to keep the fraud secret by defeating individual controls.

Set out below are five concealment strategies frequently used by criminals (mainly directors and managers here) when committing fraud within an enterprise.

Management Override of Controls

The possibility that managers can override internal controls is present in every organisation. Because managers are primarily responsible for designing, implementing and monitoring the internal control system, they are likely to be well aware of the weaknesses in the system too. In addition, individual managers are perfectly capable of abusing their position to coerce or convince a subordinate to process a transaction without the normal checks being applied. The AICPA has described management override of controls as “the Achilles heel of fraud prevention”,⁵ especially concerning abuse of the financial reporting process. Here opportunity often combines with ...