To prevent, detect, and investigate fraud, it is useful to have some idea of the factors that must come together to produce fraudulent behaviour. Unlike many other specialist offenders, people who engage in fraud generally can not be distinguished from other people in terms of their demographic or psychological characteristics. In fact, most employees, customers, and business associates fit the profile of fraud perpetrators and are capable of committing fraud if the right factors are present.

The three factors common to all fraud form the Fraud Triangle[1]: a perceived pressure, a perceived opportunity, and a rationalization for the fraud. The pressure is not objective but perceived and is usually some combination of financial need and the need to support an addiction or habit (gambling, drugs, shopping, etc.). A sizable number of people who commit fraud also do so to get even with their employer or others. The perceived opportunity speaks to the ease of committing the fraud, concealing it, and avoiding being punished for it and is some combination of lack of controls to prevent and detect fraud and lack of sufficient disciplinary action for fraud perpetrators. And the last factor – the extent to which the perpetrator can rationalize committing the fraud – depends on the perpetrator’s level of integrity. Not surprisingly, generally dishonest people find it easier to rationalize fraud. However, even people with no prior history of dishonesty have used the following rationalizations for fraud: “I’m only borrowing the money and will pay it back”, “I deserve it, because I work very hard”, and “I’m not hurting anyone”.

Most efforts to prevent fraud focus on reducing the perceived opportunity to commit fraud, such as strengthening the control environment (clear organizational structure and effective internal audits) and control procedures (authorization, documentation, and inspection). Reducing the opportunities for fraud remains the best way of disrupting the fraud triangle, but there are also ways of reducing the likelihood that the other two components of the fraud triangle will materialize. Having a thorough background check done, particularly for senior positions or business partners, will assist with avoiding those with a history of dishonesty who are very likely to easily rationalize fraud. Also, generally encouraging a healthy lifestyle and work-life balance, and making counselling and fitness resources available and affordable or including coverage for these in the benefits package, may make a difference in the way people respond to perceived pressure.

https://en.wikipedia.org/wiki/Fraud_deterrence

Albrecht, W.S. (July/August 2014). Iconic Fraud Triangle endures. Fraud Magazine. Retrieved from http://www.fraud-magazine.com/article.aspx?id=4294983342 on March 27, 2017.

Coenen, T. The Fraud Triangle and What You Can Do About It. AllBusiness: Insurance and Risk Management. Retrieved from https://www.allbusiness.com/the-fraud-triangle-and-what-you-can-do-about-it-4968017-1.html on March 27, 2017.

Albrecht, W.S., Albrecht C. O., Albrecht, C. C. & Zimbelman, M. F. (2012). Why People Commit Fraud. In Fraud Examination (4^th ed., pp. 31-51). Mason, OH: South-Western, Cengage Learning.

[1] The term was coined by Steve Albrecht, but the theory was first proposed by Donald Cressey and Edwin Sutherland (known for his Differential Association theory of crime).