Criminologist Donald R. Cressey identified three traits that are commonly present when people perpetrate fraud. Cressey created an hypothesis known as the ‘fraud triangle.’ The three sides of the fraud triangle are:
- Rationalization – Since the majority of individuals who commit serious occupation fraud are not career criminals, they feel a strong need to justify their actions.
- Opportunity – Access to company assets and a lack of internal controls that will prevent immediate detection of the fraud.
- Pressure – This is a financial need (real or perceived) that the individual cannot share with others due to potential shame or loss of social status.
When these three sides of the triangle are present, there is a much higher than normal chance of an individual committing a fraud.
In this post, I want to write more about one of the three sides of the fraud triangle, rationalization. Rationalization is the process of justifying actions that the individual knows to be wrong. In the case of employee theft, most perpetrators are not habitual offenders. They are not career criminals. They have a strong internal need to justify their actions.
I have seen two common rationalizations. The first is, “I was only borrowing the money.” A person who uses this rationalization has convinced himself that this is a temporary situation and that, as soon as their finances turn around, they will repay the money in full. They haven’t “stolen” anything. This was simply an unauthorized “loan.”
The second rationalization is that the money is owed to the fraudster. In the current economy, people are often asked to do more work, as their coworkers are laid off, and there is also no money for raises or bonuses. In some cases, workers are actually forced to take less just to keep their job. The employee feels they are being treated unfairly and they are simply helping themselves to something that is truly owed to them.
When these situations are combined with the financial hardships many families are facing, it is a recipe for disaster. This is why it is critical for employers to do things to maintain a positive atmosphere. It is much harder for happy and satisfied employees to rationalize theft from their employer. Business owners should review the current satisfaction level of employees, pay heed to their complaints, and address them if appropriate. This is one area of business where is doesn’t pay to be penny wise and pound foolish.
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