Auditing implications derived from a review of cases and articles relating to fraud;

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Auditing Implications Derived from a Review of Cases and Articles Relating to Fraud
W. Steve Albrecht* Marshall B. Romney*
Brigham Young University
For the past two years an interdisciplinary team of researchers1 has been stud­ying
the problem of management fraud. The motivation for the study was threefold: a noted increase in the number of management frauds being committed, an increased awareness of auditors' responsibilities for detecting frauds, and a Peat, Marwick, Mitchell & Co. research grant. The objectives of the research were: (1) to conduct an extensive interdisciplinary review of the fraud related literature, (2) to identify individual, organizational, and societal factors that sug­gest
a high probability of fraud, (3) to partially validate these factors by comparing them to past cases of fraud, and (4) to organize these factors into an early warning system that could be used by auditors in detecting and deterring fraud.
In completing the first objective, four data sources were investigated: (1) over 1500 literature references (books, journal and magazine articles, monographs, newspaper citations, and unpublished working papers) were reviewed,2 (2) fraud perpetrators and victims were interviewed, (3) 65 organizations concerned with the detection, deterrence, prosecution, or punishment of fraud were visited in per­son
or contacted by mail or telephone, and (4) numerous legal and organizational documents (prison and parole records, Donn Parker's extensive files on computer fraud, and corporate records) were examined.
In completing the second objective, a comprehensive list of all variables which appeared to influence or be associated with the perpetration of fraud was compiled as the data sources were examined. The variables identified were classified into three major categories: societal, organizational, and individual factors. During this process, patterns and relationships among the variables emerged and a tentative model explaining fraud was developed.
The third objective, validating the fraud-related variables, involved examining 72 past cases of fraud. Twenty of the cases came from Donn Parker's files (Stan­ford
Research Institute) and 52 cases came from published accounts3 of fraud. Each case was carefully analyzed to determine which of the items on the master list of variables appeared to be present in the case. At the completion of this proc­ess,
each item on the master list was carefully reviewed and the master list revised.
* This project was funded by a grant from the Peat, Marwick, Mitchell Foundation through its
Research Opportunities in Auditing program. The views expressed herein are those of the authors
and do not necessarily reflect the views of the Peat, Marwick, Mitchell Foundation.
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