As forensic practitioners, we are often asked: Why do people commit fraud? We understand “fraud” as including a range of criminal and unethical behaviours and we will use it in that sense in this article, too.
That aside, there is no one simple answer to this question.
However, the so-called Fraud Triangle (diagram below) originally developed by an American sociologist called Donald Cressey, may be helpful in understanding what motivates people to do so.
It explains how a person:
- who identifies an opportunity
- is motivated to commit fraud and
- thereafter rationalises the fraud committed.
THE FRAUD TRIANGLE
There is no doubt that, where there is opportunity and a motivated individual, fraud is likely to follow.
All that rationalisation requires is a way for the fraudster to justify the fraud and square it with his/her conscience, as in, for example, “I do not get paid enough”, “I am owed this money, “I’ll pay it back when …”, “Everyone else is doing it”, “No-one’s ever going to catch me…”, “My boss is so stupid – s/he’ll never catch me”, and so on.
As the leader of an organisation, however large or small, it is important that you, therefore, periodically spend time assessing and prioritising your organisation’s risk for fraud, dependent on your appetite for risk and the resources available.
Once you have done this, take steps to manage your risk proactively across your systems, processes, policies, procedures, practices and controls. Ongoing monitoring, review and refinement should also take place.
Always remember that however well you may think you are running your organisation, fraud is committed by
people and indicators such as the following can be useful in identifying potential fraudsters. T
hese are, however, only indicators.
Staff members who have:
- a seemingly insurmountable situation requiring money to resolve – for example, emergency medical treatment of a family member;
- general financial pressures, especially in tough economic times, and an inability to manage his/her finances;
- perceived pressures/incentives – for example, where a person who has an addiction to gambling, alcohol or drugs; and
- a desire to take revenge on a senior person/the organisation – for example, where a staff member is overlooked for promotion but is expected to do the job for the person who was promoted.
This is not to say that staff members who are grappling with these issues will automatically commit fraud.
However, it may be worth having a closer look, especially if they occupy significant positions in your organisation, for example, finance, IT and SCM. (One of the most effective things you can do is to always screen your employees carefully in these areas before employing them – and to periodically re-screen them – but there are other ways to assist in reducing your risk for fraud in these areas).
In conclusion, without an appropriate fraud risk assessment and an integrated fraud risk management strategy and plan, you or your organisation could also find yourself the unwitting victim of fraud.