Multiple Choice
A warning sign that a credit counseling agency may not be legitimate is when they promise to _____.
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
Struggling with Financial Accounting?
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Which of the following is a common mistake that small-business owners make as their businesses begin to grow, potentially increasing the risk of fraud according to the Fraud Triangle?
A
Failing to implement adequate internal controls
B
Hiring too many employees at once
C
Focusing exclusively on marketing strategies
D
Reducing the use of accounting software
Verified step by step guidance1
Understand the Fraud Triangle: The Fraud Triangle consists of three elements that contribute to fraud—opportunity, pressure, and rationalization. Adequate internal controls are essential to reduce opportunities for fraud.
Analyze the options provided: Evaluate each option to determine its relevance to the Fraud Triangle and the risk of fraud.
Option 1: 'Failing to implement adequate internal controls' directly relates to the 'opportunity' element of the Fraud Triangle. Without proper controls, employees may find it easier to commit fraud.
Option 2: 'Hiring too many employees at once' does not directly increase the risk of fraud unless it leads to inadequate oversight or internal controls.
Option 3 and 4: 'Focusing exclusively on marketing strategies' and 'Reducing the use of accounting software' may impact business operations but are not directly tied to the Fraud Triangle's elements. Therefore, they are less relevant to the risk of fraud compared to the lack of internal controls.
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