Research Findings

Studying employees' pressures, rationalizations at an NGO

In the most simplistic terms, happy employees are less likely to commit fraud. Once an organization appreciates this (and the many contributing factors), management can better defend against fraud.

Several existing fraud models try to explain fraud, with Cressey’s Fraud Triangle, of course, the most widely adopted. (See Improving fraud risk management with an enhanced Fraud Triangle.) This theory suggests that frauds involve three particular factors as summarized by W. Steve Albrecht, Ph.D., CFE, CPA, CIA, as perceived pressure, perceived opportunity and rationalization. (See Albrecht’s Iconic Fraud Triangle endures, Fraud Magazine, July/August 2014.)

I was interested in the psychological aspects of fraud, so I conducted research that delved into the pressures and rationalizations of employees, which are closely linked with employee happiness and job satisfaction. I examined these in the context of a local non-governmental organization (NGO) in a developing country in Southeast Asia. Systemic fraud and corruption has plagued this country, which makes fighting fraud at the organizational level an everyday challenge.

Research approach and findings

Many believe that employees commit fraud because of greed or a lack of personal integrity. However, after conducting a thorough review of literature and previous fraud studies, my summary conclusion was that the most important factor in an organization’s fraud risk was the work environment. (For example, see Pamela Murphy and Clinton Free’s insightful article, Broadening the Fraud Triangle: Instrumental Climate and Fraud in Behavioral Research in Accounting, Volume 28, No. 1, 2016.)

In other words, employee fraud is closely linked with how employees perceive their working conditions. When employees view the work environment as enjoyable, supportive, respectful, fair, ethical, etc., there tends to be higher job satisfaction and lower fraud risk.

Conversely, if employees perceive that management treats them with a lack of respect or the working conditions are undesirable or stressful, it’s more likely that employees will commit fraud. Employees might consider poor working conditions as a form of pressure and/or rationalization to commit fraud. If they believe that management is being unfair, they might retaliate. Employees might justify to themselves that committing fraud is okay because management doesn’t care about them, and so they must take care of themselves.

My research consisted of primarily questionnaires (a census of all 50 employees) and in-depth interviews. Figure 1 below shows the census questions and mean responses, which I used to create a fraud risk profile of the organization.

3.64 Management values my feedback.
3.48 Management is fair.
3.56 Management is ethical.
3.98 Management is tries hard to treat employees well.
3.40 Management usually consults employees prior to major decisions.
3.48 Management has realistic expectations of employees.
2.88 Management tolerates some dishonesty.
3.54 Management cares about my well-being.
3.80 Management are good role models.
3.34 Management empowers employees to make some decisions.
3.86 Management recognizes employees’ good performance.
3.58 Management awards promotions based on ability.
3.98 Management hires new employees based on ability.
4.10 Management treats men and women equally.
3.24 Management expects employees to follow their directions without question.
3.64 Management consistently disciplines employees for making mistakes.
3.40 Management always follow the rules.
3.60 Management deserves my respect.
3.58 When I make a mistake, my manager gets angry.
4.00 My manager encourages me.
3.82 My manager is qualified for his/her role.
4.04 My manager takes responsibility for his/her work.
3.38 My manager never asks me to do anything dishonest.
2.76 My manager is sympathetic to my personal problems.
3.22 My manager takes responsibility for his/her mistakes.
3.70 I follow the example of my manager.
4.36 My manager encourages me to be better.
3.98 My manager’s expectations of me are reasonable.
4.34 I enjoy working with my colleagues.
3.82 My colleagues are kind.
3.42 I trust my colleagues.
4.42 I enjoy my work.
4.28 I am happy with my responsibilities.
4.38 I am proud to work at my organization.
3.50 I admire my organization.
4.36 I feel loyal to my organization.
4.26 I have fun at work.
4.20 It is very important that my team accepts me.
3.88 My job is secure.
4.28 I have friends at work.
4.28 I am happy to work here.
4.02 I am treated well.
3.92 I am treated like family.
2.20 Working at my organization is stressful.
3.46 My salary is fair.
3.22 My salary is sufficient to provide for myself and my family.
3.06 I deserve a higher salary.
3.64 I deserve a promotion.
2.72 My family asks me for money I do not have.
3.68 I am happy with my current lifestyle.
3.78 Departments cooperate well with each other.
4.06 New employees are made to feel welcome.
3.58 Information is freely shared throughout the organization.
4.02 Loyalty to my organization is more important than my individual goals.
2.90 Fraud is common at my organization.
2.70 Certain types of fraud are acceptable.
2.10 Certain types of fraud are encouraged.
3.94 Management takes fraud seriously.
4.10 Management tries to prevent fraud.
2.42 Some fraud is acceptable if it helps my organization.
2.46 Some fraud is acceptable if it achieves a greater purpose.
3.34 Management is more concerned about the result than how they are achieved.

Figure 1: Mean survey question results based on a 5-point scale where 1 = strongly disagree and 5 = strongly agree.

National culture

During the interview stage, it became clear that aspects of the national culture had a direct impact on the workplace culture. As is common in this part of the world, the national culture includes a high degree of collectivism where close relationships are highly cherished. This carries over into the workplace where employees emphasized their desire to feel like an organizational family. When management treats them like family, their level of commitment and job satisfaction increases.

In the West, where people generally value individualism over collectivism, feeling a sense of family in the workplace might be less important or even viewed as undesirable or unprofessional by some employees.

Another interesting cultural norm at play was the concept of “losing face,” which employees will often go to great lengths to avoid. Losing face means admitting personal faults or weaknesses, which people consider embarrassing. For example, some employees rationalize fraudulent acts to avoid losing face. In the past, some employees falsified work reports to convince their managers that they’d achieved the desired work result. They would rather risk their jobs by lying on their reports than lose face to their managers.

Although this type of thinking might seem illogical to many in the West, it’s nonetheless a reality in many cultures around the world, and management ignores such local norms at their peril.

Practical implications

I designed my research to produce several practical suggestions to reduce fraud risk for my partner organization. I list these in Figure 2 below.

Treat employees with respect.
Create open, two-way communication channels. Genuinely listen to employees and respond appropriately.
Ensure that employees have the necessary resources to excel at their duties.
Offer encouragement, support and sympathy for employees.
Apply the rules consistently for everyone, i.e. no favoritism.
Set a good example in honesty and integrity.
Reward loyalty, hard work and commitment.
Provide competitive salaries and benefits.
Enforce a zero-tolerance policy for fraud, acting swiftly and decisively when fraud does occur.
Align performance evaluations with organization’s goals and priorities. Ensure targets are realistic.

Figure 2: Practical suggestions for management to reduce fraud risk

It’s important, however, to tailor such initiatives to the specific culture and organization. What’s valued at this particular organization in Southeast Asia might be different from what employees value in other parts of the world.

Management must learn what employees value the most in job satisfaction, and address those desires. This approach won’t only reduce an organization’s fraud risk but numerous other benefits should follow, such as employees being more motivated, productive and collaborative.

This isn’t to say that other factors are irrelevant when assessing an organization’s fraud risk. For example, internal controls are an obvious and important consideration. And certain pressures and rationalizations are independent of the work environment. Additional research opportunities abound in investigating how various factors influence the likelihood of fraud within an organization.

Management: take heed

Although this case study focused on one specific organization in a specific culture, I found that the Fraud Triangle had very good explanatory power — even in a non-Western country. Fraud risk at this particular organization was relatively low because of a generally desirable work environment and management set a good example.

Although there were some areas of concern, these generally favorable factors reduced employees’ perceived pressures and the likelihood that they’d rationalize fraud.

The prime outcome of my research is the confirmation that management can significantly reduce an organization’s fraud risk by fostering a desirable work environment and maximizing employee job satisfaction — a win-win for all involved!

Steve Johnson, DBA, CFE, CPA, CA, is a compliance investigator with International Medical Corps in the Middle East. His email address is:

This study wasn’t based on International Medical Corps or its partners.