“I have spent the best years of my life giving people the lighter pleasures, helping them have a good time and all I get is abuse, the existence of a hunted man.” So said Al Capone, the most notorious and sinister gangster that ever terrorised Chicago. He didn’t condemn his actions, but saw in himself a public benefactor, unappreciated and misunderstood. This psychological sequence is characteristic of a lot of criminals, few of whom regard themselves as bad people, and most of whom attempt to justify their actions and are unlikely to condemn or blame themselves.
This ‘rationalisation’ is part of a standard methodology developed by fraud investigators. It is also one aspect of the most widely accepted model for explaining why employees steal from their employers, namely the ‘fraud triangle’, a model developed by criminologist Dr. Donald Cressey in the 1970’s. Most employees who defraud are not career criminals and the majority are trusted employees who have no criminal history. According to the Association of Certified Fraud Examiners, nearly 88 percent of employee fraudsters who get caught have no prior criminal record. So why do they do it? According to Cressey, there are three factors that must be present at the same time for an ordinary person to commit fraud – pressure, opportunity and rationalisation.
In one case, a sales manager fabricated an order of over £1,000,000 which led to a bonus of £18,000 and a salary increase of £10,000.
Pressure is the origin of the crime and is what drives the motivation in the first place. Common amongst some of the lower value and less sophisticated thefts by employees is addictive behaviour, such as drugs or alcohol. A common motivational feature amongst more sophisticated and sustained events is a desire to enhance standards of living, to socially climb or to fund an extravagant lifestyle. “Desire never wants what it’s got, desire never stops” to quote a lyric from a ‘James’ track. Pressure may also lead to falsification of accounts or manipulation of orders to support performance metrics. In one case, a sales manager fabricated an order of over £1,000,000 which led to a bonus of £18,000 and a salary increase of £10,000. Here, the pressure came from having to perform to budget and from a desire to increase his own personal wealth. The order went to production but client instructions never followed, leading to a huge stock write off.
The second side of the triangle is opportunity. The perpetrator must see some way to abuse the position of trust to solve the financial pressure, but have a low perceived risk of getting caught. The rather sobering result of many studies is that most people can commit fraud if confronted with the right trigger and all types of people do commit fraud if the opportunity presents itself. Insiders will know the soft spots within the defences of the company, and the evidence supports the fact that it is those who have been with the organisation long enough to work out the weaknesses that are best placed to exploit them.
Finally, we return to rationalisation. As most fraudsters are first-time offenders with no criminal past they do not view themselves as criminals, simply ordinary, honest people who are victims of circumstance. In most cases, the perpetrators of workplace fraud are surprisingly ordinary and they justify their acts through different forms of rationalisation. For example, ‘I was only borrowing the money’, ‘I was underpaid’ or ‘my employer isn’t honest so they deserve it’. To run the risk of a cliché, crime losses are frequently perpetrated by “the person we would have least expected”.
All three factors are invariably present when a fraud occurs and if a ‘side’ of the triangle is removed, the fraud has a much lower chance of success. Interestingly, the model also tells us that concerns over status, not greed, is one of the primary motivators for occupational fraud. This has an important impact on potential deterrents, so punishments typically play little part in an effective solution – fraudsters do not anticipate getting caught, or even accept they are doing anything wrong, so the threat of sanctions they never see themselves facing carries no weight.
The net effect of all of this is that it is practically impossible to remove the risk of employee fraud from any organisation. Yet there is nothing particularly sophisticated amongst many of the examples of employee theft and many are quite the reverse, often crude. Simple controls, such as segregation of duties or approved supplier lists, would have prevented many long term and financially damaging frauds. Insurance can clearly play a part, but it should sit as part of a fraud prevention programme, not a substitute for one. And whilst it’s not possible to control the thoughts and actions of the entire workplace population, sensible and straightforward measures combined with a strong insurance product will mitigate the likelihood and impact of occupational fraud.