Knowing What’s Under YOUR Control in ‘The Fraud Triangle’ & How to Manage it

Originated by PhD Criminologist Donald Cressey, the Fraud Triangle posits that there are three factors that must exist for fraud to occur in your business: Pressure (Motive), Opportunity, Rationalization.  One of these is completely within YOUR control in your business.  Read on to learn more.

For fraud to exist, it begins with Pressure or a Motive.  The perpetrator feels pressure from such sources as:

• Internal demands on performance (bonuses for positive key performance indicators) 
• External pressure from investors or key stakeholders to meet a certain bottom line
• Pressure from home/personal problems – addiction to gambling, alcohol, or drugs; living beyond one’s means; debt, divorce, college, death in the family, etc.

Staff interpret these in varying ways; sometimes leading them to look to their employer to solve their problems with the employer’s funds.

Opportunity – the one thing you can control is the next key component for fraud to exist in your organization. 

Keep these high level components visible in your company:

• Tone at the top – one of Ethics, Accountability, Integrity.  State it; live it; show it
• Internal controls – ensure you have policies and procedures for how staff are to engage and behave in their work environment
• Separation of duties – ensure no single person has control over all aspects of a process or asset in your organization
• Financial controls – review the numbers monthly; know what they should be and question when things are what you expect; separate duties – especially with respect to banking/cash controls

Employees will act in nefarious ways if they believe they can get away with it – if they think they won’t get caught.  Make sure you have systems in place to prevent this.

Rationalization – the final component of the triangle.  Employees, upon stealing from the company, justify their actions:

• “I deserve this – I feel slighted by the amount of money I am paid for the work I do”
• “I see other employees taking things and nothing happens to them, so I’m entitled as well”
• “I’ll pay it back just as soon as…….”
• “They make so much money, they won’t miss this”

And on and on.  They don’t see themselves as criminals and thus rationalize and excuse their behavior.

Remember, it’s within your control to reduce the chances of fraud in your organization by limiting the opportunities for it in the first place. How do you start though?

Step 1: Click here for a free listing of Fraud Prevention Tips.
Step 2: Use the button below to schedule your free session with me.