The Fraud Triangle on trial

Dr. Donald Cressey’s Fraud Triangle has endured because it’s correct and simple. However, the ACFE has never stated that the triangle can explain every case of fraud. So, be careful when you use the Fraud Triangle in court. The judge might reject it. The Fraud Triangle is a useful tool to help us understand why and how people commit fraud, but it’s not a scientific theory.

If you’re a CFE, or if you’ve been an ACFE member for any length of time, you’ve heard of the Fraud Triangle. It illustrates core principles of the ACFE’s training in understanding how fraud occurs.

In the July/August 2014 issue of Fraud Magazine, Dr. Steve Albrecht, CFE, the ACFE’s first president and one of the foremost researchers on fraud, wrote what I consider to be the definitive history of the Fraud Triangle, “Iconic Fraud Triangle Endures.” I recommend you read this excellent article. I won’t rehash history here, but I’ll borrow Dr. Albrecht’s excellent summary:

The Fraud Triangle states that individuals are motivated to commit fraud when three elements come together: 1) some kind of perceived pressure 2) some perceived opportunity 3) some way to rationalize the fraud as not being inconsistent with one’s values.

I first heard of the Fraud Triangle when I came to work at the ACFE in 1995. Previously, I’d been an attorney in a private, civil practice handling consumer fraud and deceptive trade practices cases. Because I had limited experience with employees stealing from their employers, I was interested in this area. I began reading the writings of Donald Cressey, Steve Albrecht, Gil Geis, and, of course, Joseph Wells.

Making sense of fraud

One of the first things that I learned is that understanding any particular individual’s motivation for engaging in fraud or any type of deviant behavior is extremely complicated. I was privileged later in my career to spend the afternoon with renowned criminologist and ACFE pillar, Dr. Gilbert Geis, CFE, talking about motivations for fraudulent behavior. Finally, I just came right out and asked him, “Why do people commit fraud?” He answered very matter-of-factly, “We don’t know.” Stupid question, I thought, but he went on to say that we really can’t say for certain why one person commits fraud and another one doesn’t when they both need money.

The same is true with any type of criminal behavior. There are innumerable factors that could cause a person to decide to rob a bank: extreme financial pressure, psychological abnormalities, extreme external pressures, hatred of financial institutions or an unhealthy obsession with Bonnie and Clyde.

In the end, it’s difficult to pinpoint an exact cause for any specific act of criminal or anti-social behavior. It’s usually a combination of factors unique to that individual in that particular circumstance.