Reasons for Committing Fraud

Reasons for Committing Fraud

1.    High Competition

First reason to commit fraud may be high completion. For example due to high competition the profit margin has reduced, which has adversely affected the management performance. Therefore management would try to overstate the revenue.

2.    Decline Customer Demand

Decline in customer demand is another pressure to commit fraud. Again a decrease in demand would negatively affect the profits and management would try to overstate the profit by overstating the revenue or understating the costs.

3.    Operating losses

Third pressure for fraud commitment may be continuance operating losses. These losses are negatively affecting the market value of the entity and there is fair chance of liquidation, therefore management would try to hide these losses.

4.    Finance Arrangement

Fourth pressure to commit fraud is finance arrangement. Financial institution put some condition for financing, and organization may try to show such financial position to get finances.

5.     market expectation

Fifth reason for fraud may be market expectation about the financial result of the entity. Management would try to meet the market expectation by manipulating results.

6.    Management Financial interest

Sixth pressure for fraud may be the financial interest of the management. For example management has shareholding in the entity and profitability would raise the share price. Therefore management would overstate profitability.

7.    Management Self interest

Seventh pressure for fraud is management self interest in the entity results. For example management may be interested in high salary and bonuses, therefore management would overstate the profit.