Some say that Bernard L. Madoff is the biggest financial fraud in history. The N

Question

Some say that Bernard L. Madoff is the biggest financial fraud in history. The New York Times gives us some background on Mr. Madoff

"For Bernard L. Madoff, there was also his multimillion-dollar private foundation that doled out money to hospitals and theaters. Indeed, through his charity work at places like the Gift of Life Bone Marrow Foundation or his public service at institutions like Yeshiva University, where he served on the board, Mr. Madoff seemed to have created a stainless persona of integrity and trust. And that fit with his rate of return, which was never attention-grabbing, just solid 12-13 percent year in, year out."

How did Mr. Madoff keep his new investments at such a high rate of return and keep paying off investors and giving to charities? Explain how he was able to do what he did financially so long.

Explanation / Answer

A fraud is a dishonest act by a employee that results in personel benefit to the employee at a cost to the employer. The three main factors that contribute to fraudulent activity are depicted by the fraud triangle.The most important element of the fraud trianglel is opportunity. For an employee to commit frajud, the workplace environment must provide opportunities that an employee can take advantage of . Opportunities occur when the workplace lacks sufficient controls to deter and detect fraud. For example, inadequate monitoring of employee actions can create opportunities for theft and can embolden employees because they believe they will not be caught.            A second factor that contributes to fraud is financial pressure.Employees sometimes commit fraud because of personal financial problems caused by too much debt.            The third factor that contributes to fraud is rationalization.In order to justify their fraud, employees rationalize their dishonest actions.             The standards of conduct by which one's actions are judged as right or wrong, honest or dishonest, fair or not fair, are ethics.Effective finncial reporting depends on sound ethical behavior.               Mr.Madoff kept his new investments at such a high rate of return and kept paying oof investors and giving to charities was not able to do for a long time.

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