Causes Of Fraud

A major reason why people commit fraud is because they are allowed to do so. There are a wide range of threats facing businesses. The threat of fraud can come from inside or outside the organisation, but the likelihood that a fraud will be committed is greatly decreased if the potential fraudster believes that the rewards will be modest, that they will be detected or that the potential punishment will be unacceptably high. Upon the case of John Y. Lee, a former director of Samsung America Inc. who fled to South Korea nearly eight years after he was sentenced more than six years in prison at New Jersey Federal Court at 2008, we have identify that there are some internal control failures that would have allowed the fraud take place.

There are

In Samsung company, the internal control system is ineffective because of the adequate division of responsibilities among employees didn’t exist among those who perform accounting procedures or control activities and those who handle assets. For instance, John Y. Lee created fake invoices, purchase orders and payment applications to make it come out that Samsung Corning Precision Co. Ltd had ordered and received services from Engelhard Supple Co. John Y. Lee used the fake documents to cause Samsung America Inc. to payment to an ESC bank account that John Y. Lee

What is asset? Asset includes cash, cheque, and inventory which is important for the company to run the business. However, when there is a weak access control, the employees and clients are motivated to commit frauds. For instance, theft of the physical asset, misappropriation of petty cash if business processes and internal controls are not established and enforced. Some of the management employees may use the petty cash for operating purposes including the payment of invoices or miscellaneous amounts, to pay salaries or wages, or to make advances or loans to staff. For instance, John Y. Lee created a fictitious entity named Engelhard Supple Co. to make it appear as though that entity was actually Engelhard Corporation. John Y. Besides, due to the weak physical security, writing false credit note to customers with details of an employee’s personal bank account or of an account of a company controlled by the employee. The employees may also stealing passwords to payment systems and inputting series of payments to own account may occur due to the poor access control