The Fraud Triangle : the why and how of Fraud

After researching the circumstances that led embezzlers to temptation, Donald R. Cressey developed the Fraud Triangle. He found out that for fraud to occur, three elements must be present: opportunity, incentive (or pressure) and rationalization.

1. 1. Opportunity: it speaks for itself that there must be something to steal, something of value or interest that makes it worth taking the risk to commit a crime. But it also means that fraudsters think that they can get away with it. If it seems too hard they will probably focus on other targets first.
   2. Incentive or pressure: what motivates a fraudster to commit a crime? Why would someone be taking a risk that could lead to criminal charges? In case of an individual, it might be linked to their personality, but even seemingly trustworthy employees have been known for turning against their employer. Personal debts, greed, lifestyle... could be pushing good people to cross the line, but employees feeling they are being pushed too hard by their employer could also be tempted to commit fraud. External threats could come from criminal organizations or even competitors...
   3. Rationalization: fraudsters tend to rationalize their actions. Professional fraudsters are often convinced that nobody could trace back the fraud and accuse them of theft. Internal fraud justification could be a feeling of not being valued or appreciated enough, but also the idea that a large corporation will not be going bankrupt because of this fraud. Fraudsters justify their behavior by diminishing the impact of their actions. Their personal urgency seems to outweigh the impact on the company.

Economic turmoil increases Fraud Levels

The past has shown that turbulent times have increased the risk of fraud. As companies are struggling to stay afloat, employees might be perceiving increased pressure: pressure from management, but also from clients and/or suppliers could lead to stress. People might fear the risk of restructuring due to cost cutting initiatives. This economic uncertainty triggers people to move cash out of the organization for personal gain.

Since the Covid-pandemic has hit the world, remote work has become the norm. And while this has offered numerous advantages, this new way of working has also created some challenges. Many firms already had home working policies in place, yet others did not. Companies with a strong hierarchy and traditional sign-off procedures are extra vulnerable as they are not organized for remote working.

The economic pressure and uncertainty resulting from COVID combined with the disruption of daily routines are the ideal setting for increased fraud, and you should be fortifying your defenses.