Defrauding for fun not need

Fraud examiners have used the iconic Fraud Triangle, containing Dr. Donald Cressey's principles, for decades. However, the author contends that Cressey didn't necessarily develop his theories to explain behavior of those who don't have financial needs and are predisposed to committing fraud even before organizations hire them.

I've been involved in fraud examinations of all types for more than 20 years: general white-collar crimes, public corruption, wire and mail fraud and others. Throughout the years I've used the iconic Fraud Triangle too many times to count for discussions and demonstrations. Though I've discovered the illustration adequately explains many frauds, it doesn't explain all occupational fraud. I've worked a number of fraud cases that didn't fit neatly within the model because they involved subjects who didn't have financial need and often stole from the moment organizations hired them.

[See The Executive Fraud Triangle: The great 'I,' a Fraud Magazine "Special to the Web" feature, by Laura Downing, CFE, for another discussion on this subject. — ed.]

In one case, a large Midwestern organization suspended the subject because it had accused him of misusing his position and submitting personal expenses for reimbursement. The organization paid the subject a large six-figure salary and gave him a generous expense account, which allowed him to be a member at two different country clubs, plus travel expenses and tickets to sporting events.

The organization also provided him mileage reimbursement for his personal car even though it provided him with a work vehicle. His wife also worked for the organization with a six-figure salary and an expense account.

During the fraud examination, we discovered the subject had been submitting false receipts for reimbursement, capitalizing expenses when the expense accounts were depleted and he appeared to be operating a personal business that conflicted with his work responsibilities.

When viewed in the context of the Fraud Triangle, two elements of the triangle — opportunity and rationalization — were present, but the third element — financial need — was missing. The subject had the opportunity to commit the fraud because of his position. He also had a strong sense of entitlement and thus had rationalized his way into and through the fraud. However, the subject certainly didn't have any financial needs. He didn't have to engage in the behavior; he simply was stealing without remorse.

This case led me to reflect on many similar cases I've encountered in which subjects stole, without any financial needs. I decided to review the Fraud Triangle again to see if I could determine the reasons why these cases appeared to be exceptions to the paradigm.

Fraud Triangle exception

The Fraud Triangle has been a staple of anti-fraud discussions ever since criminologist Donald Cressey proposed the theory to understand occupational fraud in the 1950s. Many have used the diagram in countless talks and speeches. (See Iconic Fraud Triangle endures: Metaphor diagram helps everybody understand fraud, by W. Steve Albrecht, Ph.D., CFE, CPA, CIA. This article explains Cressey's, criminologist Donald Sutherland's and Albrecht's roles in developing the Fraud Triangle.)

Cressey observed and identified the three elements after he reviewed the facts of fraud cases and subsequently conducted interviews of convicted fraudsters. He outlined his theories and observations in his book, "Other People's Money: A study in the social psychology of embezzlement." (Montclair: Patterson Smith, 1973)

In his book, Cressey explained that each of these elements of fraud are present in every occupational fraud case. However, the presence of these factors doesn't imply or necessarily mean that fraud is taking place. They are merely red flags suggesting further investigation.

However, one type of employee doesn't fit neatly within the theory: those fraudsters who'd planned on committing fraud from the moment they were hired or became part of their organizations. Many people have committed and been convicted of fraud who didn't have financial needs. Some people just don't have the morals or conscience to refrain from fraud. Apparently, these individuals have character flaws that compel them to commit crimes when they don't need to.

Often, fraud examiners or others will explain in Fraud Triangle presentations that premeditated fraud or an individual's predisposition to commit fraud as "greed" or "greedy behavior," which they often incorporate within the financial need test of the triangle. Sometimes these fraud examiners use lack of morals as a contributing factor to rationalization — the common reasoning is that a weakened moral conviction can make people susceptible to easily rationalizing fraud.

But after reviewing Cressey's methodology I believe that pre-planned or premeditated fraud or a subject's predisposition to commit fraud just aren't types of criminal activity that are incorporated in the Fraud Triangle theory.