Daniel Workman

ACCT 2600
10/6/19
Ethics and Fraud
How are ethics and fraud related? What constitutes fraud? How are ethics formed?
Ethics are taught from a young age and teach us what is right and wrong. Ethics help us to
decide what to do in tough situations. Fraud is all too common in the workplace. Ethics teach us
how we should behave when faced in a situation where fraud can be committed.
Fraud is defined as an intentional misrepresentation of facts, made for persuading
another party to act in a way that causes injury or damage to that party. There are two main
types of fraud: misappropriation of assets and fraudulent financial reporting. Misappropriation
of assets is committed by employees of a company who steal money from the company and
cover it up. It doesn’t exactly mean stealing physical money, forging time cards and stealing
office supplies are examples of misappropriation of assets. Fraudulent financial reporting is
committed by company managers who make false or misleading entries in the books. By doing
this, they claim to have more assets, cash, or revenue than they actually had to persuade
investors or suppliers to invest more or offer greater discounts on supplies. Both forms of fraud
hurt the company negatively.
The fraud triangle explains how fraud happens. The 3 corners of the triangle are:
motive, opportunity, and rationalization. Motive can be greed or an unexpected incident in life.
For example, The Typical White-Collar Criminal video tells a story of an accountant whose
daughter gets in an accident and needs plastic surgery. The bills rack up to $50,000 and
insurance won’t pay. The accountant decides to forge invoices so checks will be printed that he
can cash. He ended stealing 3 million dollars. Opportunity arises from improper internal
controls. When one person is in charge of receiving invoices, paying vendors, and balancing the
books it is really easy to cut yourself a check. For example, the Introduction to Ethics in
Financial Reporting video tells a story of a CEO that inflated earnings by 1.4 billion to persuade
investors to invest and to please the board of directors. Rationalization is the justification for
the fraud. For example, The Typical White-Collar Criminal video again, the accountant justified
stealing the money because his daughter needed it more than the company did.
Ethics help us to decide what to do when faced with an opportunity of fraud. Fraud
hurts companies, the economy, and results in government intervention in severe cases. Stealing
money hurts companies. Just because the company has cash on hand doesn’t mean the
employees have a right to take it. Releasing fraudulent financial reports leads to investors and
suppliers to change the way they think about the company and persuade them to change their
relationship with the company. Both situations are unethical and manipulates people to behave
the way you want them too.
I have a personal example of fraud. When I was 20, I was working a Dairy Queen and
was promoted to General Manger and moved to a new store. The day the District Manager was
going to introduce me to my new store and crew, I showed up an hour early. I ordered food like
a normal customer and watched the employees. I noticed the cashier in drive-thru was taking
money out of the cash register on credit card transactions. After being introduced to the crew, I
looked into what was happening. The cashier was charging the customer $10 more than there
order on their card and taking $10 cash out of the till. Had I not noticed we may not have
caught it. The employee’s actions resulted in angry customers and lost sales.
In conclusion, fraud can take on many different forms. All forms of fraud end up hurting
a company in one way or another. The employee committing fraud can face a lot of jail time.
The potential prison time shouldn’t be what deters us from committing fraud. What should
deter us from committing fraud is our own personal ethics code.