Fraud Rationalisation

Many theories have been presented explaining the motivation of fraud, bribery and corruption.  Specifically, it has been suggested that:

• Differential Association Theory explains why fraud occurs by groups;
• General Strain Theory explain why fraud occurs by individuals; and
• Cressey’s Fraud Triangle address both.

I agree with the first two statements, however the suggestion that Cressey’s Fraud Triangle addresses the motivation of both individuals and sub-groups is not accurate.

Cressey’s Fraud Triangle, seen below, illustrates that the risk of fraud occurs when opportunity, pressure and rationalisation of the act is recognized.

Ernst & Young’s illustration of The Fraud Triangle (Cressey, 1953)

The pressure placed on employees can create the perception of justification of the fraud.  Categories of pressure include:

• Financial pressure; or
• Non-financial pressure, encompassing:
• Work-related pressure;
• Vices; and
• Pressure associated with individuals wish to live a luxurious lifestyle (Lokanan, 2015).

The pressure placed on an employee can drive the want to appear successful.  This is very prominent in my workplace.  High productivity targets are set and all employees wish to be recognised as diligent.  Temptation to forge a timesheet arises when charging client work to ensure productivity targets are achieved.  This demonstrates that strain on employees can lead to fraud in any sense.

The following video explores the rationalisation of fraud (Pope, 2015).

From an analysis of the theory, we understand the likelihood of fraud, bribery and corruption occurring rises when the opportunity to commit fraud increases, internal and external pressure increases, and internal controls decrease.  It is therefore crucial that organisations heed warning signs from employees.

References

 

Ernst & Young. Cressey’s Fraud Triangle [Image].  Retrieved from: https://blackboard.qut.edu.au/webapps/blackboard/content/listContent.jsp?course_id=_123312_1&content_id=_6144809_1

 

Lokanan, M. E. Challenges to the fraud triangle: Questions on its usefulness. Accounting Forum, 39, 201 – 224. doi:10.1016/j.accfor.2015.05.002

 

Pope, K. R. (writer), Anderson, A. (presenter). (2015). TED-Ed.