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The JGS Advisor » The Fraud Triangle

Understanding the reasons why people commit fraud is an important component to early detection and prevention.

Recognizing some of the motivating factors and attitudes that lead a person to view fraud as a reasonable course of action can be helpful for accurately gauging risk and conducting investigations into existing fraud cases.

The contributing elements to an act of fraud are easily understood when they are broken down as The Fraud Triangle, which represents the three major psychological and environmental factors that often cause people to commit fraud: Pressure, opportunity and rationalization.

Pressure is the primary driving force behind the act and is usually financial in origin. An individual’s concerns about current or future financial stability can lead to desperate acts, especially when there are extenuating circumstances that make that individual’s financial problems particularly acute. Drug addiction, divorce, excessive gambling and maintaining an unaffordable lifestyle are the most common reasons fraudsters cite as integral to the decision to commit fraud. Employers and managers should try to be aware of the hardships of their employees and recommend counseling when appropriate.

Opportunity creates a situation in which people have reason to believe that their crimes will go undetected. This is commonly due to a business’s lax or nonexistent internal controls or poor management oversight. Improving these types of controls is crucial to reducing the risk of occupational fraud.

Rationalization is the method by which a person justifies committing an act of fraud.
Usually, the fraudster sees theft as a vindicating act that sets the scales even in response to some perceived injustice from the employer. It’s common for employees to claim that stealing is merely compensation for an employer’s underpayment or lack of appreciation.

Some employees feel that their employer is dishonest and that stealing from them is justified, while others honestly convince themselves that they’re merely borrowing the money and will pay it back in the future.

While many of these rationalizations may have more to do with the individual constructing them than they do with the actual facts of the situation, they underscore the importance for employers to maintain a positive work environment and display to employees that they are valued members of the business. It becomes much more difficult to steal from someone you cannot vilify.

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