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
As an experienced corporate investigator, having investigated hundreds of various types of fraud cases, it’s really not hard to come to the conclusion that where there is smoke there is usually fire and often times in more than one place. When a client or an individual is alerted to suspicious behavior by an employee/contractor, the investigation generally must focus on the specific allegations. However, it is also important to use the initial investigation opportunity to open a broader review into the suspect for two main reasons:
To look for motivating factors (a motive); and
To determine, if he/she may be committing fraud or deviant behavior in other areas not specific to the case. After all, if the individual is involved in some form of fraud or deviant behavior that we are aware of, it is highly probable this extends to other areas as well.
According to the widely accepted Fraud Triangle model developed by Donald Cressey, “…individuals are motivated to commit fraud when three elements come together: 1) some kind of perceived pressure, 2) some perceived opportunity, and 3) some way to rationalize the fraud as not being inconsistent with one’s values.” One of the reasons for opening a broader investigation and not just focusing on the specific allegations is to look for motivating factors or pressure(s) the person may be under that might drive him/her to commit the fraud. People often say “I would never do that” but when faced with varying degrees of perceived pressure, it is difficult to determine the lengths people will actually go to in committing fraud. … Continue reading
Preventing organizational fraud demands systematic planning and implementation. This entire process, from inception and assessment to performance evaluation is complex, even in smaller organizations. Yet, the payoff for the effort can be huge.
In this post, we offer an overview of the elements of a fraud prevention program that would be useful in any organization. Summarized from, Managing the Business Risk of Fraud: A Practical Guide, produced by a consortium of associations, the guidelines point to specific steps managers can take to implement an effective fraud prevention program. … Continue reading
Occupational fraud is a huge drain on organizations’ resources, costing an estimated global loss of $3.7 trillion dollars annually. And according to the Association of Certified Fraud Examiner’s (ACFE) 2014 study, just 14% of defrauded organizations are able to fully recover their losses.
Fraud is a very real threat to the bottom line of almost every organization in our economy. But it can be prevented, or at least mitigated.
There are 3 steps in setting up a fraud prevention program in your organization:
Understand what fraud is and how it is likely to emerge.
Identify potential sources of fraud in your organizations.
Take steps to prevent fraud through processes or controls.
Ultimately, a healthy anti-fraud corporate culture that permeates from the top down will make your organization more crime resistant. This will take time to nurture, and it will take continuous effort to sustain, but in the end you can make occupational fraud an extinct disease in your workplace.
