BLIND ALLEYS OF FINANCIAL FRAUD

Abstract

This paper discusses four lesser known human factors and interrelationships between them that could lead to financial reporting fraud. Identified as blind alleys, these factors are self-regarding disposition, self-control, judgment shift, and self-efficacy. Fraud risk-factors emerging from the consideration of these factors separately and collectively are identified and illustrated using selected alleged and actual fraud cases. Illustrative controls for each factor are included.

Notes

1. Securities and Exchange Commission v. Jeffrey D. Cordes et al., No. 3:20-cv-00822 (N.D. Tex. filed April 8, 2020.

2. Securities and Exchange Commission v. Praxsyn Corporation and Frank J. Brady, Case 9–20-cv-80706-XXXX filed April 28, 2020.

3. https://www.cfo.com/fraud/2020/04/luckin-coffee-crashes-after-company-admits-coo-fabricated-transactions/, accessed May 1, 2020.

4. https://www.cnn.com/2020/06/19/tech/wirecard-fraud-tech-accounting/index.html, accessed June 23, 2020.

5. Holton (2009) asserts that not every case of yielding to temptation will bring judgment shift; sometimes we judge that we are doing wrong even as we do it. For example, a Ponzi schemer is likely to understand that the act is wrongful from the very beginning. For more on Ponzi schemes as a special category of fraud, see Raval and Raval (2019).

6. Mr. Buffett’s comments to shareholders at the 2017 Annual Meeting.

Additional information

Notes on contributors

Vasant Raval

Vasant Raval is professor emeritus of accountancy at Creighton University (Omaha, Nebraska, USA). His areas of interest in teaching and research include information systems and financial fraud.  He has developed a fraud model, called the disposition-based fraud model, and has recently published a book on corporate governance.  He can be reached at [email protected].