Can the Fraud Triangle Help Us Understand How the Higher Ed Admissions Bribery Scandal Happened?
High-profile stories of fraud in corporate America are commonplace, but the details surrounding Operation Varsity Blues – the biggest college admissions bribery scandal of its kind to be prosecuted by the US Justice Department – reveal how fraud is an equal opportunity threat.
Pressures, opportunities, and rationalizations of all sorts combined to create a situation for coaches, parents, admissions personnel, and test administrators to deceive the admissions system. In total, $25 million was reportedly paid in bribes and 50 defendants were named in the case.
Criminologist Donald Cressey’s Fraud Triangle offers a framework for understanding the factors that lead people to commit fraud. In the infographic below, we use the fraud triangle as a model for understanding how the college admissions scandal happened.
Colleges and universities are not immune to fraud, and it’s imperative that administrators have protections in place to safeguard their reputations and resources. The infographic outlines a few key prevention measures.
Check out the full infographic here:
This week is International Fraud Week, an annual awareness effort organized by the Association of Certified Fraud Examiners (ACFE) to shine a spotlight on fraud. It is estimated that fraud costs approximately 5 percent of annual revenue for organizations worldwide. The seriousness of the global fraud problem is why, throughout the year, we provide our clients and other organizations with tips and information to fight fraud and safeguard businesses and investments from the growing fraud problem.
Here we share 6 of our most-read fraud-related resources:
Our latest whitepaper, Occupational Fraud: A Hidden Killer of Organizational Performance, provides an in-depth look at the complexities of occupational fraud, so you can prevent, detect, minimize, and/or recover from it.
Get your copy of Occupational Fraud: A Hidden Killer of Organizational Performance>
The value of the fraud triangle is that it helps us to look at the objective factors that must be present for fraud to occur. Recognizing these objective factors helps to define actions you can take to help prevent fraud, partly through organizational policy controls and partly through managing the relationship with employees to encourage openness and trust.
View the Fraud Triangle infographic>
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Ordinary people can do extraordinary things, including committing fraud. The question is, what motivates an ordinary person to morph into a fraudster?
“Pressure,” or motivation, is one of the three causal factors of Donald Cressey’s Fraud Triangle, along with opportunity and rationalization. A quick summary of the theory is that a person commits fraud when under difficult or threatening personal circumstances (pressure) and he or she has access to a valuable target for personal gain (opportunity) that they can justify internally (rationalization).
The pressure factor in fraud risk is idiosyncratic and dynamic. Individuals’ circumstances are as highly varied as their perceptions and reactions are to them. The main thing is that the propensity for fraud emerges when a person’s circumstances create perceived pressure that leads him or her to exploit an opportunity when it appears. In other words, every person in every organization has the potential to commit fraud under the right combination of circumstances. … Continue reading
Donald Cressey’s Fraud Triangle historically has received a lot of attention during the ACFE’s Fraud Week and for good reason. It supplies a useful set of analytical distinctions in its three components—opportunity, rationalization, and pressure or motivation—that lead us to look at specific relevant factors that affect fraud in organizations. Understanding the causal forces at work helps us to take steps to address them.
The opportunity for fraud is the most straightforward causal factor for organizations to address because it is rooted in the organization itself. Unlike motivation or rationalization, opportunity does not depend on the potential fraudster’s personal circumstances or state of mind. Therefore, opportunity reduction works regardless of whether or not a potential fraudster exists in the workforce at any given time.
Opportunity has long played a part in the general policy of crime prevention. For example, in the 1980’s, a prominent theory was Crime Prevention through Environmental Design (CPTED). The aim was to create living and working spaces that removed opportunities for crime. In turn, CPTED was based on Jane Jacobs’ insight that safer cities were those that had vibrant, people-filled public spaces with lots of eyes on the scene. The idea that opportunity can be managed to reduce the incidence of crime, regardless of how potential criminals think or behave, has a solid pedigree. … Continue reading
We recently received a call from a small business owner who had just discovered that a long time employee had been stealing from his business. The crafty scheme involved fictitious vendors and false invoices that resulted in checks being written to accounts belonging to the employee and his girlfriend. The thief (or thieves, as it turned out) was a trusted employee, of course, but rationalized taking the money so he could “support his family.” That is, support the family with luxury items, vacations, gadgets, and goodies.
This kind of fraud is distressingly common, despite that it is so hard to understand in the context of mature, cooperative behavior. We are simply programmed to learn to trust people that we share experiences and challenges with over a long period of time. We form teams.
The Rationale Does Not Have to be Rational
Donald Cressey’s well-known “Fraud Triangle” identifies three elements needed to trigger a fraud: opportunity, motivation or pressure, or rationalization. It’s the rationalization that most often strikes us as removed from reality in some way, or transparently false. We feel a shock when someone trusted betrays us, and our first reaction is that they must feel the same way—how could they do this? … Continue reading