ArticlePDF Available

Abstract

This article revisits the Fraud Triangle, an explanatory framework for financial fraud, originally developed by the American criminologist Donald Cressey from his interviews with embezzlers. First of all, we describe several developmental cornerstones of the Fraud Triangle. Its recent theoretical and practical application is reconsidered. In accordance with the three elements – motivation, opportunity, rationalization – and on the basis of our empirical study of 13 company fraudsters in Austria and Switzerland, we illustrate some within-company measures, which may contribute to a low fraud risk corporate culture. Although opportunity is necessary but not a sufficient condition for ‘upperworld’ criminal offences, our respondents regard the perceived pressures they experienced as salient. Rather than rationalizations, there is a ‘fraud-inhibiting inner voice’ before the crime, which normally deters an individual from fraudulent behaviour. This inner voice becomes quieter over time until the fraud occurs; at least in their cases. Our interviewees argue that all Fraud Triangle elements – including the inner voice – are highly influenced by the corporate culture in their companies.
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
www.palgrave-journals.com/sj/
Original Article
The Fraud Triangle revisited
Alexander Schuchter a , * and Michael Levi b
a School of Management, University of St. Gallen , Dufourstrasse 50, 9000 St. Gallen , Switzerland .
E-mail: alexander.schuchter@unisg.ch
b School of Social Sciences, Cardiff University , Wales, Cardiff CF10 3WT , UK .
E-mail: levi@cf.ac.uk
* Corresponding author.
Abstract This article revisits the Fraud Triangle, an explanatory framework for fi nancial fraud,
originally developed by the American criminologist Donald Cressey from his interviews with
embezzlers. First of all, we describe several developmental cornerstones of the Fraud Triangle.
Its recent theoretical and practical application is reconsidered. In accordance with the three
elements motivation, opportunity, rationalization and on the basis of our empirical study of
13 company fraudsters in Austria and Switzerland, we illustrate some within-company measures,
which may contribute to a low fraud risk corporate culture. Although opportunity is necessary
but not a suffi cient condition for upperworld criminal offences, our respondents regard the
perceived pressures they experienced as salient. Rather than rationalizations, there is a fraud-
inhibiting inner voice before the crime, which normally deters an individual from fraudulent
behaviour. This inner voice becomes quieter over time until the fraud occurs; at least in their
cases. Our interviewees argue that all Fraud Triangle elements including the inner voice are
highly infl uenced by the corporate culture in their companies.
Security Journal advance online publication, 4 February 2013; doi: 10.1057/sj.2013.1
Keywords: Fraud Triangle ; Fraud Diamond ; white-collar crime motivation ; fraudulent oppor-
tunity ; pressure ; rationalization
Introduction
This article revisits the Fraud Triangle, an explanatory framework for fi nancial fraud, devel-
oped by the American criminologist Donald Cressey. The article is based mainly on review-
ing fi ndings from the literature but also includes some results gained from our empirical
study conducted with convicted fraudsters in Austria and Switzerland. First of all, we
describe briefl y several developmental cornerstones of the Fraud Triangle. Its recent theo-
retical and practical application is reconsidered. Subsequently, the composition and relevant
characteristics of this model are explained; thus, all elements, motivation, opportunity,
rationalization, its connections between each other and overlapping parts are described.
In accordance with the three elements and on the basis of our empirical study we illustrate
some within-company measures, which may contribute to a low fraud risk corporate culture.
Furthermore, an additional element capability enlarges the triangle to a quadrangle,
2© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
Schuchter and Levi
commonly denominated as Fraud Diamond. However, we question the need for every
element of the Fraud Triangle as a mandatory precondition for white-collar crime in compa-
nies. The Fraud Triangle and its variant, the Fraud Diamond, are appropriate to understand
much fi nancial crime, but they are not universally applicable.
Development of the Fraud Triangle
The Fraud Triangle is commonly used by both sociologists and psychologists to account for
crime in organizations. Cressey (1953) interviewed more than 120 incarcerated white-collar
embezzlers, so-called trust violators , in special interviewing rooms in different US prisons
and at the inmate s place of employment in the penitentiary. He documents that there have
to be more elements than just a fi nancial incentive for a criminal violation of fi nancial trust.
Cressey (1950) and his mentor Sutherland (1940, 1941) nd a common denominator to
aggregate this kind of crime without physical violence into trust violation , which is
described as the most common but not universal characteristic of white-collar crime.
Cressey s data constitute an empirical basis for the Fraud Triangle, starting in 1950 and
culminating in 1953. Cressey (1953) designated the following three elements as necessary
for white-collar crime:
First, a problem that the offender considers to be non-shareable , becomes a stimulus
for delinquency if the situation is perceived as a unique possibility to fi x the problem,
which is regarded as desperate. Subsequent literature frequently shows a division of this
motivational element into pressure and incentive. Even if the problem was in fact com-
municable and easily soluble, all Fraud Triangle elements depend solely on the perception
of the fraudster.
Second, the individual has to regard his or her position of trust as an opportunity for
committing a crime.
Finally, the rationalizations used are relevant and necessary to neutralize the view that the
conduct was criminal or even improper.
Cressey (1950) refers to Riemer’s (1941) journal publication Embezzlement: Pathological
Basis , when describing opportunity. Riemer s article is based on 100 cases of embezzle-
ment, which were examined during the 1930s in a Swedish prison. Surprisingly, he alludes
to very similar conditions to the Fraud Triangle elements described by Cressey. As argued
by Riemer’s (1941, p. 411) , the following three different fraud-causing aspects have to be
accounted for when committing a crime: the social pull; the opportunity the social
push; the emergency situation the psycho-pathological element involved . Riemer points
out that a potential fraudster needs a situation, which offers an opportunity; a driving force
in an emergency situation, which may consist of a plurality of environmental constellations;
and psycho-pathological conditions have to be considered as well. We hypothesize that
Cressey was strongly inspired by Riemer s work when developing an initial Fraud Triangle
approach.
In subsequent decades, Cressey s attainments have been refi ned and enhanced by
many different academics in several disciplines. The Fraud Triangle is used as a funda-
mental basis for the development and categorization of illustrative risk factors of several
3
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
The Fraud Triangle revisited
international auditing standards. Lou and Wang (2009, p. 75) describe it as the foundation
for the recently devised fraud risk factors; hence, the core of all fraud auditing standards .
Albrecht and Albrecht (2004) , Howe and Malgwi (2006) , Loebbecke et al (1989) , Lou and
Wang (2009) , Nettler (1974) and recent international auditing standards follow Cressey
(1953) in his assertion that it took all Fraud Triangle elements for trust violation to occur.
Since the Fraud Triangle, frequently named as early fraud warning instrument according
to Gill (2011b, p. 28) every theory of crime is a theory of prevention, understanding
them is crucial has been recognized by fraud standards, scientifi c management papers
have increasingly focused on it; in the course of that the number of publications from differ-
ent academic disciplines has also increased. Experiments with students measuring risk
assessments published by LaSalle (2007) show that better results can derive from partici-
pants who were provided with an overview of the Fraud Triangle than from students who
were provided a briefi ng on the COSO Integrated Framework (Internal Control; Committee
of Sponsoring Organizations of the Treadway Commission). The Fraud Triangle advanta-
geously focuses more on individuals and less on organizations; books and records do not
commit fraud; people do ( LaSalle, 2007, p. 77 ).
In the absence of one or more elements, fraud is regarded as very unlikely, which is
considered in greater detail in the following sections. Albrecht and Albrecht (2004)
compare the triangle elements motivation, opportunity and rationalization with fuel,
heat and oxygen, needed to light a fi re; this fi re-fraud analogy is also cited by LaSalle
(2007) . According to them, an elimination of any one of the elements can extinguish this fi re
as well as fraud. We do not contest that all Fire Triangle elements are required for fi res and
(at least in the absence of severe rain) are suffi cient to ignite. At this point we strongly sug-
gest that a distinction must be made. Their conclusion by analogy misses the following
point: the Fraud Triangle with its components can create a condition for fraud. As Romney
et al (1980) note, all elements, even opportunity, are substitutable. They summarize results
of a study in which researchers with different backgrounds identify responsible factors for
fraud to develop a model explaining fi nancial delinquency. As a result Romney et al docu-
ment fraudulent behaviour as a summation of situational pressures plus opportunities to
commit fraud plus personal characteristics. A decade later, Loebbecke et al (1989) amended
this additive theory by a new model, which seeks to explain white-collar crime through
a multiplication of each Fraud Triangle element. Their multiplicative approach is nowadays
used predominantly in the business literature. Recent international fraud standards as well
as the literature exclude substitutability and it is generally assumed that all elements are
mandatory for white-collar crime to occur. Our interviews with fraudsters give grounds to
doubt that this assumption properly applies to all cases, though it may apply to most.
Motive force of fraudsters
Since Cressey, it has been known that all Fraud Triangle elements overlap with each other;
for example, an extensively developed and systematized rationalization can be an individu-
al s motive and may offer a sense of support in an offender s fraudulent mind and conse-
quent behaviour ( Cressey, 1954 ; Nettler, 1974 ). Motivation as a third Fraud Triangle
element is commonly divided by the literature into the sub-elements incentive and
pressure. It is not unusual that a white-collar criminal combines different Fraud Triangle
4© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
Schuchter and Levi
elements ( Wheeler, 1992 ) or subelements, for example, our empirical study with Swiss and
Austrian high-profi le fraudsters depicts an existing opportunity as an incentive for fraud. As
Coleman (2001, p. 63) puts it: motivation and opportunity are inseparably interwoven and
any successful theory of white-collar crime must take that fact into account. Thus, in a
certain sense, all elements are entangled to a greater or lesser degree .
However, the variety of sources for motivation to defraud cannot be ignored. More pop-
ulist media commonly attribute motivation of white-collar crime not just to fi nancial greed
of individual detached black sheep in society or in an organization. There is an incentive
of fi nancial benefi t ( Stotland, 1977 ), but as our research and literature fi ndings accentuate,
fraud is not all about money, which is rather more a symbol with little intrinsic relevance
( Coleman, 1992 ). In this context, Heath (2008, p. 600) adds if greed combined with
opportunity really caused crime in any signifi cant sense, then there would be a lot more
crime, simply because greed is ubiquitous as human motive and the world is rife with oppor-
tunity . In general, an individual could claim motivational dependence on goals, which are
individually and organizationally set. External circumstances are able to change goals and
vice versa; thus, motivation can be modifi ed, to attain a desirable state, which is one reason
why some organizations with many opportunities have very little fraud. Punch (1996, p. 84)
stresses that business environments are potentially criminogenic: the organization is the
offender, the means, the setting, the rationale, the opportunity, and also the victim of corpo-
rate deviance . Slapper and Tombs (1999, p. 141) follow Punch in describing capitalist
corporations as inherently criminogenic because they operate according to the code of
profi tability , which largely overrides morality. Next to this resulting amorality because of
profi t maximization, the environment surrounding a company also affects the development
as well as the acceptance of corporate crime, ( Slapper and Tombs, 1999 ) which, in turn,
infl uences individuals. One of the diffi culties with the capitalism is criminogenic approach
is that it does not allow for suffi cient observed variation between fi rms and sectors. We do
not consider that security professionals are wasting their time , or that corporate culture
and situational opportunities are unimportant. As several literature fi ndings as well as our
empirical examination confi rm, the interaction between external created situational condi-
tions and individual fraudulent motivations has great infl uence on the situation, which is the
paramount importance while committing crime.
Different sorts of fi nancial and non-fi nancial, organizational and private incentives can
represent this motivational Fraud Triangle subelement, for example, greed, poor perform-
ance or an urgent need for external fi nancing, living beyond one s means, desire to avoid
reputational damage, any kinds of perceived injustice, search for status and demonstration
of power, different types of addictions and so on ( Bussmann and Werle, 2006 ; Gill, 2011a, b ).
Spencer (1959) draws attention to individuals, who not just prefer to meet a challenge, but
seek out chancy activities because of the so-called gambling instinct. Several literature
ndings show that some individuals in management positions are risk seekers and risk
takers ’ ( Wheeler, 1992 ; Bussmann and Werle, 2006 ); this attitude could be regarded as
a part of the successful manager s image ( Punch, 2000, p. 262 ). In addition, Sakurai and
Smith (2003) show that gambling problems in Australia are indeed a motivation for com-
mitting fi nancial crime by individuals, who try to obtain funds for their addiction (see also
Howe and Malgwi, 2006 ).
What was once a mere incentive can turn into pressure to continue. If the originally
described non-shareable problem ( Cressey, 1950, 1953 ) is perceived as insoluble except
5
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
The Fraud Triangle revisited
through fraud in the mind of a potential offender pressure can arise. Various situational
circumstances may lead to personal or work-related fi nancial pressures, for example, costs
because of signifi cant medical expenditures, meeting analysts forecasts, producing better
and better business results or non-fi nancial pressures, for example, preserve social status,
working very long hours, divorce, diseases and so on ( Lou and Wang, 2009 ; Dorminey et al ,
2010 ; Gill, 2011a, b ). In this context Punch (2000) indicates, inter alia, the subjective and
individual experience of pressure as an essential point. According to Punch (1996, p. 238) ,
it is important how managers perceive their pressure.
Opportunity as a necessary but not suffi cient condition
Independent of a manager s motivation, a delinquent act needs an opportunity . The admin-
istration of larger sums of money requires an appreciable amount of trust; thus, individuals
with a previous criminal record provided the company are able to and do check are very
unlikely to be entrusted with such responsible tasks. According to Benson et al (2009) , all
forms of white-collar crime have opportunity structures consisting of specifi c opportunity
characteristics and vary by type of fraud. They assume that a potential fraudster reacts to an
opportunity structure; if a particular type of fraud is made harder to commit, the number of
offences (and in the long run, attempts) will reduce. Coleman (1987, p. 424) characterizes
the attractiveness of opportunity to fraudsters as refl ecting the size of expected gains com-
pared with legitimate opportunities the perception of potential risks the compatibility
of the opportunity with the ideas, rationalizations, and beliefs the individual actor already
has the evaluation of an illicit opportunity in comparison with the other opportunities
of which the actor is aware (see also Coleman, 1992, 2001 ).
Recent management literature fi ndings highlight a weak internal control system and
ineffective organizational controls because of a lack of monitoring, security measures and
circumvention within the company without a functioning system of authorization, as one of
the most relevant risk factors, which increases the attractiveness of an opportunity and
opens the doorway to fraud ( Marden and Edwards, 2005 ; Bussmann and Werle, 2006 ;
Howe and Malgwi, 2006 ; Dorminey et al , 2010 ). Moreover, additional factors, such as the
ability of management to override controls, a poor tone at the top, an unstable or too
complex company structure, a permissive environment, negligence, too much trust at the
wrong place (for example, between the external auditor and mandator), missing or weak
preventive antifraud programs (for example, antifraud training measures) and consequently
a leak of knowledge (for example, the bosses and boards are not competent enough to
detect irregularities) are similarly considered as responsible for additional opportunities for
committing white-collar crime ( Loebbecke et al , 1989 ; Farber, 2005 ; Howe and Malgwi,
2006 ; Lou and Wang, 2009 ).
Extension of the Fraud Triangle: Capability
It cannot be denied that occupational activities, which involve individuals in fi nancial deal-
ings, for example, positions at top-management levels, change the number and scale of
opportunities available ( Coleman, 2001 ). Crime-motivated individuals require not just
6© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
Schuchter and Levi
opportunity, but also the understanding that there is an existing opportunity to defraud. The
perception and other skills, which are required to carry out activities, have to be distin-
guished from the opportunity element itself.
Hence, Wolfe and Hermanson (2004) expand the Fraud Triangle to the recent four-
pronged model named Fraud Diamond and include an additional element in their journal
article The Fraud Diamond: Considering the Four Elements of Fraud : the individual s
capability to commit fraud. This element of the enhanced framework contains the following
traits and cognitive abilities: individual know-how, resistance to stress to ensure not being
discovered immediately, confi dence and ego, coercion skills to convince others concealing
crimes or use other individuals as an instrument of manipulation, effective lying skills to
avoid detection and the hierarchical position or function in an organization, for example, in
the form of a key position, in which an individual has access to cash fl ows ( Wolfe and
Hermanson, 2004 ). Earlier publications from Croall (2001) , Ones and Viswesvaran (2001) ,
Schnatterly (2003) or Wheeler (1992) pick up some elements of the idea of capability before
Wolfe and Hermanson s highly regarded publication erstwhile most likely classifi ed and
described as part of the opportunity. We suggest that capability as a further element is not
entirely new, but it does complement the Fraud Triangle in a novel way.
Rationalization process of white-collar crime
As Riemer (1941) and Sutherland (1941) presume that in the majority of the fraudulent
cases, an individual s career is neither planned on the basis of lies and crimes, nor involves
a defect of character. Usually managers know how to bridge their behaviour and the law in
accordance with perceived morality. In the event of a white-collar crime, individuals attempt
to minimize bad conscience and try to fi nd a way to show their frauds as less wrongful, more
plausible to themselves to maintain self-esteem, self-respect or a favourable self-concept
( Shover and Hochstetler, 2006 ) and to others to avoid shame or stigmatization ( Levi, 2002 ;
Goldstraw-White, 2012 ). Blickle et al (2006) analysed empirical data material obtained
from 76 white-collar perpetrators and 150 non-criminal managers, who fi lled out paper and
pencil scales. They found, inter alia, that the need for social acceptance is higher and narcis-
sistic tendencies are stronger in the responses of fraudsters. (The latter coincides with Babiak
and Hare s (2007) analysis of the sociopathy of white-collar criminals they studied.) On the
basis of their results it is conceivable that white-collar criminals increase their efforts in
a variety of ways to avoid a loss of their social status and to prevent a destruction of their
self-image. If the occupational and social standing are lost following detection, as Weisburd
and Waring (2001) note, recidivism of stigmatized individuals may be more likely, even it is
diffi cult to predict future offenses and though opportunities to use senior managerial posi-
tions to commit fraud are less likely (provided background checks are made by employers).
However, if someone violates social norms, a before the event justifi cation or verbali-
zation may neutralize the discrepancies between his or her own individual moral sensibility
and self-concept, on the one hand, and the criminal violation of fi nancial trust, on the other.
In the often cited work Techniques of neutralization: A theory of delinquency , Sykes and
Matza (1957) note that individuals give themselves a kind of permission to white-collar
crime, which is regarded as valid by the offender but not by the legal system or society in
general terms. Thus, it is usually not only important to have a plausible explanation for
7
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
The Fraud Triangle revisited
themselves, but also ex post facto for others in case the delinquency is discovered. This
basically psychological self-protection measure is a further Fraud Triangle element described
as rationalization ( Cressey, 1952, 1953 ). This element became one of the most discussed
topics in the fi eld of white-collar crime over the last decades ( Coleman, 2001 ). If a violation
of fi nancial trust is called into question, socially approved vocabularies or accounts are used
in order to render fraud innocuous as well as abate or even avoid sentences ( Austin, 1961 ;
Goldstraw-White, 2012 ). Mills (1940, p. 911) asserts that vocabularies of motives ordered
to different situations stabilize and guide behaviour and expectations of the reactions of
others . In Sutherland and Cressey’s (1960) view, such a practice can be a learned attitude
by individuals, for example, from their organization to the situational morality of business
conduct , as Levi (2010b, pp. 469 470) added. Punch (2000, p. 259) notes that the culture
of a company and developed ideologies can facilitate what Mills (1940) termed vocabular-
ies of motive and this can be conducive to signifi cant rule-breaking.
Frequently encountered techniques of neutralization are applied to redefi ne white-collar
crime, for example, everybody else does it , I am only borrowing the money and I will pay
it back ’ , ‘ nobody will get hurt ’ , ‘ I deserve more ’ , ‘ the organization owes it to me ’ , ‘ no
choice in the matter , respect the folkways of the business world, thus, business is busi-
ness and so on ( Riemer, 1941 ; Cressey, 1954 ; Spencer, 1959 ; Albrecht and Albrecht, 2004 ;
Golden et al , 2006 ; Howe and Malgwi, 2006 ; Heath, 2008 ; Levi, 2008 ). Rationalization can
be performed in manifold ways as Zietz (1981) shows in a study of female embezzlers,
which applies Cressey’s (1953) examination of male embezzlers. She enhanced the arsenal
of verbalizations and found that women compared with men in general make less use of a
borrowing-pretence and they are less interested in protecting their status, but excuse their
white-collar crime rather more through an urgent family need; both kinds of neutralization
might refl ect gender roles in our modern society and culture.
Cressey (1950, p. 743) adds that rationalizations are refl ections of contact with cul-
tural ideologies which adjust for the person contradictory ideas in regard to criminality on
the one hand and in regard to integrity, honesty and morality on the other. Denying respon-
sibility by claiming that they have been infl uenced by apparently uncontrollable circum-
stances, whether in form of an unavoidable market forces, or a serious illness of one s own
children or partner may reveal crime in a different light and ingeniously turn a fraudster into
an avenger or in an extreme case even into a victim and the victim into the wrong-doer
( Zietz, 1981 ; Willott et al , 2001 ; Dhami, 2007 ). Coates (2012) combines gender effects with
sociobiology and herding effects in testosterone-concentrated environments. However, in
comparison with a blue-collar criminal, a white-collar one may be more successful at
getting other individuals to empathize when explaining the conduct away as accident or
misfortune ( Shover and Hochstetler, 2006 ). Nevertheless, the simple application of rationali-
zation to every kind of white-collar fraudster can be risky. An appreciation of the full
extent of fraud could overthrow this Fraud Triangle element as an untenable assumption, as
demonstrated by our empirical study in the following section.
Summary
All elements of the Fraud Triangle a heuristic framework for explaining fi nancial fraud
depend solely on the perception of the fraudster. First, a problem, which offenders consider
8© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
Schuchter and Levi
to be non-shareable , become a motivational element for delinquency if the situation is
perceived as a unique possibility to pull oneself out of the present state and improve the
situation. Second, individuals have to regard their position of trust as an opportunity and
they have to have the skills and nerve to defraud. Finally, delinquents give themselves a
permission in terms of neutralizing the discrepancies between their own moral sensibility
and self-concept, on the one hand, and the criminal violation of fi nancial trust, on the other,
described as rationalization.
A Study of White-collar Criminals in Switzerland and Austria
Research design and methodology
Our empirical study was conducted in 2010 through interviews with 13 (12 face-to-face inter-
views and one telephone survey) of Switzerland (9) and Austria s (4) white-collar fraudsters.
After the interviews (recorded on audio tape), transcriptions were compiled verbatim and
translated from German into English. The lengthy investigation and conviction period covers
20 years, since 1990, whereas most of the convictions took place after 2000. The applied
problem-centred interview is semi-structured and open-ended based on Witzel (2000) .
Our respondents comprise elite perpetrators with high professional standing, respecta-
bility (managing directors, senior executives, partners, owners or CEOs of large fi rms,
accountants at top management levels, politicians and members of supervisory boards) and
the ability to commit upperworld criminal offences in their organizations; their victims
frequently are large and renowned companies for which they have worked (indeed, perhaps
surprisingly, a few perpetrators are still working for their victimized organization). Our
fraudsters have been convicted for fi nancial accounting fraud, corruption, bribery, embez-
zlement or funds misappropriation. Their combined crimes resulted in the loss of many
millions of Swiss Francs or Euros. A stringent obligation to observe confi dentiality in
Switzerland and Austria as well as the danger of drawing conclusions make it seldom pos-
sible to fi nd out an average or median fi gure of the damage caused. However, data on loss
may not correspond to profi t to offenders and anyway they are open to interpretation ( Levi
and Burrows, 2008 ). In contrast to Cressey as well as other researchers who examined
white-collar criminals in prison ( Spencer, 1959 ; Willott et al , 2001 and others), all our ana-
lysed interviews were conducted with convicted male (11) and female (2) fraudsters who
had been released or who never were detained (or even arrested); those convicted were not
all sentenced to imprisonment.
Perceived pressure is salient to most frauds
As the data analysis of our own empirical examination with high profi le fraudsters reveals,
the perceived pressure is the most salient and most frequently mentioned Fraud Triangle
element in our study. Albeit not an absolute prerequisite for fraud and a fl exible construct,
pressure is the most commonly referred to fraud trigger for fraudulent behaviour from
the perspective of our interviewed elite perpetrators. According to them, this pressure
was mainly caused by exorbitant expectations of management, stock markets or other third
9
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
The Fraud Triangle revisited
parties as well as workplace bullying, harassment or any kinds of unfair treatment at work
in an atrocious corporate culture. If I were to evaluate the mentioned triggers [Fraud
Triangle elements] by relevance, I have to give the pressure build up in the organization, the
stressful situation, 100 per cent. There were internal frictions and the people harassed each
other almost every day (white-collar criminal number 4, 2010). In addition, a bad psycho-
logical state or an emotional imbalance can contribute the rest. The pressure has been
psychological so I have got no more power left to resist [within this situation]. I thought I
could fi x everything with the fi gures (white-collar criminal number 2, 2010). The perceived
pressure is described as particularly high in terms of increased likelihood for fraud, when
both of the following circumstances are present: a diffi cult economic or social environment
and an individual unfavourable psychological condition.
Furthermore, if a fi nancial crime has already been committed (without detection), the
fraudster commonly tries to undo or readjust the misfortune; in particular, if someone needs
to be regarded as a t and proper person ( Levi, 2010b ) to continue a career in top manage-
ment positions, for example, as a member of a supervisory board and so on. In their percep-
tion, there is hope to fi x the previous or old fraud through another additional fraud. Worrying
about being discovered (white-collar criminal number 6, 2010). This attempt at getting the
situation under control while being afraid of getting discovered, facing the risk of losing
a predominantly excellent image and getting socially and professionally stigmatized can
cause additional fraud-stimulating pressure. The more someone needs what is jeopardized,
the more pressure he or she generally perceives.
Additional in-company actions may reduce pressure, for example, via implementing
strategies to strengthen the corporate identity in order to boost team spirit and raise the vis-
ibility of company values. Improving the working climate and building up a culture of trust
can decrease confl icts. Moreover, occupational incentives have to be kept within an accept-
able framework, for example, a variable compensation system has to be regulated, in par-
ticular, if this system is based on short-term fi nancial fi gures.
All Fraud Triangle elements are alterable to reduce fraud risks
We presume that employers, top management and security staff as well as other responsible
individuals in an organization are able to align their corporate environment to a low fraud
risk culture in accordance with the Fraud Triangle elements. Even if fraudulent opportuni-
ties cannot be completely eliminated it should be possible to reduce the attractiveness and
the feasibility by means of detective measures, which become as well preventive measures
to a certain extend, because of its deterrence effect, for example, minimum accounting qual-
ifi cation requirements as well as initial understanding of fraud risks for members of super-
visory bodies and leadership, a company individual tailored internal control system above
and beyond legal requirements, a strict adherence to the double checking or four (or even
better, six) eyes principle and improving detailed controls. Organizational weak points will
be exploited mercilessly, which our respondents recognize they understand that there is an
existing opportunity and quite openly admit: I recognized that there are no controls, this
means the hole was open [and] opportunity is given (white-collar criminal number 12, 2010).
Moreover, a proper observance of the principles of corporate governance, a robust and
transparent risk management as well as legal and regulatory compliance within the organi-
10 © 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
Schuchter and Levi
zation may also have an impact on this Fraud Triangle element. In addition, the tone at the
top permeates the whole company and is regarded as an essential topic in this context: if
leaders do not behave with impeccable integrity in everyday business then they are scarcely
in a position to demand this from their troops.
The Fraud Diamond element capability is identifi ed in our empirical data analysis, though
the interview questions intentionally and solely relate to the Fraud Triangle so our fraudsters
were not asked about the Diamond explicitly. Some interviewees talked on their own
initiative about the relevance of the hierarchical position of one s occupation as well as the
know-how and comprehension to commit an upperworld offence, which is assigned to this
fourth element of the Fraud Diamond: [My key position in the organization] enabled the
fraud. I build up the internal controls with some colleagues and I have been the only person
in the whole organization, who understood exactly how it works (white-collar criminal
number 11, 2010). Commonly, people who develop or work with an internal control
system know most easily how to manipulate this; but that does not mean that they have any
intention at all to do so.
Contrary to rationalizing crime, we detect a fraud-inhibiting inner voice before the
crime, which normally deters an individual from fraudulent behaviour. The inner voice has
been there all the time, a gut feeling , like a hammer, which always says: You are doing
something wrong and you have a bad conscience (white-collar criminal number 5, 2010).
Our interviewees argue that this voice is highly infl uenced by the corporate culture in their
companies and at least in their cases becomes quieter over time until the fraud occurs.
This [fraud-inhibiting] inner voice was affected by confl icts and trench warfare from all
sides within the company (white-collar criminal number 1, 2010). The inner voice existed
the fi rst time and became quieter over time then it [my fraudulent behaviour] became
a habit (white-collar criminal number 12, 2010).
According to Cressey (1953, p. 94) , rationalizations were always present before the
criminal act took place . Data collection in this fi eld of research generally takes place after
an offender has committed the criminal act ( Klenowski et al , 2010 ), so one might regard
retrospective refl ections even if believed as being contaminated. Our analysis seems to
reveal that a few offenders try to push away some responsibility, for example, by arguing
that controls were weak, pressure was high and so on and may regard themselves as a victim
of unfortunate circumstances ( Sykes and Matza, 1957 ) with an opportunity to solve the
problem. One might exaggerate and remark, some individuals simply drifted into this situa-
tion with limited self-control as a result and part of their environmental conditions. At the
same time the argument can be interpreted as part of a rationalization. Hence, this Fraud
Triangle element can only be identifi ed in our empirical data analysis by means of our own
subjective interpretation because the fraudsters do not make their crimes smaller than they
are. If we take our respondents exactly at their word without over-analysing the tran-
scripts, none of them explicitly rationalize or neutralize their fraudulent behaviour. This
notable fi nding does not preclude rationalization but shows that it is not a simple phenom-
enon. Rather the inner voice can be time- and situation-dependent, either fraud triggering
or fraud inhibiting. This fact exemplifi es the inner voice as alterable, not static and not left
to chance; it can be infl uenced by external circumstances in a more or less desirable way,
similar to opportunity as well as motivation.
In general, it appears conceivable that potential fraudsters may restrain themselves from
white-collar crime caused by an intensifi cation of the fraud-inhibiting inner voice , for
11
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
The Fraud Triangle revisited
example, with promoting awareness creation and sensitization relating to the individual and
overall consequences of white-collar crime. For manipulations, the white-collar stereotype
has to know how internal systems work; commonly because of years of professional experi-
ence in the victimized company. Hence, the potential fraudster is hypothetically already in
your company; therefore, we regard a continuous sensitivity training of employees in key
positions, in supervisory bodies as well as in top management as crucial.
Discussion
In contrast to literature fi ndings and according to our interviewed upperworld fraudsters,
the Fraud Triangle can create a set of conditions for delinquency, but not every element is
a mandatory precondition for white-collar crime. The Fraud Triangle does not thereby
become unimportant but the exclusion of substitutability and the multiplicative approach
should therefore be reassessed. Although opportunity is necessary but not a suffi cient condi-
tion for fraud, our results also show that perceived pressure is salient to our fraudsters
offences. As the empirical data analysis reveals, pressure though a broad category and not
a formal prerequisite of fraud is the most commonly referred to fraud trigger for white-
collar crime. Rather than conventional domestic non-shareable problems , this pressure
was mainly caused by conditions in their companies. Therefore, even if in the real world,
both a bullying culture and stakeholder greed are diffi cult to manage down, we presume that
implementing strategies to strengthen the corporate ethos and effectively motivate legal
behaviour, combined with a tailored internal control system (above and beyond legal
requirements), are important and even essential anti-fraud measures. An improvement of
the working climate and a strong tone at the top may not only reduce perceived pressure, but
also strengthen the identifi ed fraud-inhibiting inner voice and, thus, contribute to a low
fraud risk corporate culture.
Why risk a lot for a marginal rise in income?
Heath (2008) reports that many crimes are committed by wealthy individuals on higher
management fl oors in an organization. Hence, the question arises why fraud is not a less
frequent phenomenon among these groups occupying respectable white-collar positions
and who risk a lot for a marginal rise in income. Considering the benefi t they can gain,
upperworld groups surprisingly frequently commit white-collar crimes ( Coleman, 1989 ).
This can be explained by the so-called fear of falling : offenders are afraid of losing
what they have already attained ( Spencer, 1959 ; Wheeler, 1992 ; Levi, 2010a ; Piquero,
2012 ). Individuals in top management positions have usually worked hard to get what
they have and where they are. If good results and achievements begin to crack, they put
a lot of effort to doing all they can in order to salvage the situation while they can. In
contrast, the fear of failing or the fear of personal failure and shame to admit failed
judgement or imprudent behaviour ( Cressey, 1953 ; Stotland, 1977 ; Goldstraw-White,
2012 ) can be an essential factor, too, when committing fraud but may be less relevant
than the fear of falling ( Levi, 2010a ), which is able to enforce the perceived pressure
in a stronger way.
12 © 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
Schuchter and Levi
Fraud without motivation and without rationalization?
The Fraud Triangle received interest as well as criticism in the world of white-collar
crime research. Having regard to the practical as well as scientifi c relevance, in the
majority of the papers analysed, we found a brief or vague description of the Fraud
Triangle elements; seldom with greater details about what these consisted of or illus-
trated explanations, for example, which are based on concrete empirical results and
examples. The fi ndings gained in the course of our empirical study with offenders indi-
cate that not every Fraud Triangle element is required for the commission of all white-
collar crimes. According to our Swiss and Austrian high profi le perpetrators, opportunity
alone is necessary but not a suffi cient condition for fi nancial trust violation. If these
individuals have been faced with a lucrative business occasion, in their perspective, they
tried to make use of this chance in carrying out their professional aims to do legal busi-
ness. These fraudsters told us that there was no malicious intent, no criminal motivation
to commit fraud and consequently no rationalization. We want to take our respondents
refl ections seriously. Hence, we should acknowledge that white-collar crime can occur
without motivation and rationalization; but with an existing opportunity. However, the
Fraud Triangle does not lose its importance; rather the coercive must be for every ele-
ment has to be replaced by can be or almost always is. Overall, recent white-collar
crime literature referred to in the sections above follow Cressey’s (1953) conviction that
all Fraud Triangle elements are mandatory before white-collar crime can occur. This
imprecise and problematic assertion that the heuristic framework has to be complete for
white-collar crime may be attributable to the meagre scrutiny of the Fraud Triangle s
universal validity.
The Fraud Triangle: A heuristic framework for explaining fi nancial fraud
We agree with Donegan and Ganon (2008) , who note that a generalization of the Fraud
Triangle has to be considered with caution; it cannot be applied for every kind of fraud
(for example, the causes and conditions of credit card fraud without corporate insider
conspiracy may differ from those because of balance sheet manipulation). In addition, a
distinction must be made between the reasons for white-collar crime: the reason why
someone may contemplate an offence, can be different to the reason why it took place,
and different again to why the offence continues ( Gill, 2011b, p. 28 ). At this point further
research is required. Cressey’s (1953) as well as Riemer’s (1941) sample and the Fraud
Triangle development are solely based on embezzlement. According to Donegan and
Ganon (2008) , the Fraud Triangle should be rejected as a general theory of fi nancial
crime and is described as poorly suited for a universally valid explanation of economic
crime. Instead of focusing solely on the Fraud Triangle, they appeal for a serious consid-
eration of additional criminological approaches, which could be better able to explain the
dynamics of white-collar crime. Ultimately, a closer cooperation between the managerial
accounting / auditing and criminology research is recommended; this may create a win-
win situation for both the disciplines and to help us account for a broader range of
frauds.
13
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
The Fraud Triangle revisited
Conclusion
All Fraud Triangle elements are interwoven and highly infl uenced by companies.
In general, there has to be more than a fi nancial incentive for white-collar crime to occur.
According to our Swiss and Austrian high profi le perpetrators, pressure is underestimated
by companies as a generator of white-collar offending. Beyond that and rather than ration-
alizations, we identify a fraud-inhibiting inner voice before the crime, which normally
deters an individual from fraudulent behaviour. This inner voice becomes quieter over time
until the fraud occurs. Serious studies that systematically examine white-collar crime using
interviews with high profi le offenders are all too rare. Even if opportunities for white-collar
crime cannot be completely eliminated, our results conclude that given this awareness and
a willingness to change, all Fraud Triangle elements can be modifi ed by the company.
Acknowledgements
The authors gratefully acknowledge the cooperation of 13 convicted Swiss and Austrian
fraudsters, the support of judicial agency staff in Switzerland and Austria, forensic experts
through several conversations as well as the ACFE Switzerland Chapter. As usual, all mat-
ters of fact and interpretation remain the responsibility of the Authors. This research was
funded through a 1-year grant of the Swiss National Science Foundation (SNF), which did
not infl uence the study design, collection, analysis or interpretation of data; nor the writing
of the report or the decision to submit the article for publication. In any event, they are an
apolitical scientifi c body.
References
Albrecht , W . S . and Albrecht , C . O . ( 2004 ) Fraud Examination and Prevention . Mason: South-Western
Educational .
Austin , J . L . ( 1961 ) Philosophical Papers . Oxford: Clarendon Press .
Babiak , P . and Hare , R . D . ( 2007 ) Snakes in Suits: When Psychopaths Go to Work . New York: Harper .
Benson , M . L . , Madensen , T . D . and Eck , J . E . ( 2009 ) White-collar crime from an opportunity perspective . In:
S.S. Simpson and D. Weisburd (eds.) The Criminology of White-collar Crime . New York: Springer
Science+Business Media , pp. 175 – 193 .
Blickle , G . , Schlegel , A . , Fassbender , P . and Klein , U . ( 2006 ) Some personality correlates of business white-collar
crime . Applied Psychology: An International Review 55 (2) : 220 – 233 .
Bussmann , K .- D . and Werle , M . ( 2006 ) Addressing crime in companies: First ndings from a global survey of
economic crime . British Journal of Criminology 46 (6) : 1128 – 1144 .
Coates , J . ( 2012 ) The Hour Between Dog and Wolf: Risk-Taking, Gut Feelings and the Biology of Boom and Bust .
London: Fourth Estate .
Coleman , J . W . ( 1987 ) Toward an integrated theory of white-collar crime . American Journal of Sociology 93 (2) :
406 – 439 .
Coleman , J . W . ( 1989 ) The Criminal Elite: The Sociology of White-collar Crime , 2nd edn. New York: St. Martin .
Coleman , J . W . ( 1992 ) Crime and money: Motivation and opportunity in a monetarized economy . The American
Behavioral Scientist 35 (6) : 827 – 836 .
Coleman , J . W . ( 2001 ) The causes of white-collar crime and the validity of explanation in the social sciences . In:
S.-A. Lindgren (ed.) White-collar Crime Research: Old Views and Future Potentials . Stockholm: National
Council for Crime Prevention , pp. 55 – 68 .
14 © 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
Schuchter and Levi
Cressey , D . R . ( 1950 ) The criminal violation of nancial trust . American Sociological Review 15 (6) : 738 – 743 .
Cressey , D . R . ( 1953 ) Other People’s Money: A Study in the Social Psychology of Embezzlement . Glencoe: The
Free Press .
Cressey , R . D . ( 1952 ) Application and verifi cation of the differential association theory . The Journal of Criminal
Law, Criminology, and Police Science 43 (1) : 43 – 52 .
Cressey , R . D . ( 1954 ) The differential association theory and compulsive crimes . The Journal of Criminal Law,
Criminology, and Police Science 45 (1) : 29 – 40 .
Croall , H . ( 2001 ) Understanding White Collar Crime . Milton Keynes: Open University Press .
Dhami , M . K . ( 2007 ) White-collar prisoners ’ perceptions of audience reaction . Deviant Behavior 28 (1) : 58 – 77 .
Donegan , J . J . and Ganon , M . W . ( 2008 ) Strain, differential association, and coercion: Insights from the criminology
literature on causes of accountant’s misconduct . Accounting and the Public Interest 8 (1) : 1 – 20 .
Dorminey , J . W . , Fleming , A . S . , Kranacher , M .- J . and Riley , R . A . ( 2010 ) Beyond the fraud triangle: Enhancing
deterrence of economic crimes . The CPA Journal 80 (7) : 17 – 24 .
Farber , D . ( 2005 ) Restoring trust after fraud: Does corporate governance matter? The Accounting Review 80 (2) :
539 – 561 .
Gill , M . ( 2011a ) Fraud and recessions: Views from fraudsters and fraud managers . International Journal of Law,
Crime and Justice 39 (3) : 204 – 214 .
Gill , M . ( 2011b ) Learning from fraudsters ’ accounts of their offending . Prison Service Journal 194 : 27 – 32 .
Golden , T . W . , Skalak , S . L . and Clayton , M . M . ( 2006 ) A Guide to Forensic Accounting Investigation . New Jersey:
Wiley .
Goldstraw-White , J . ( 2012 ) White-collar Crime: Accounts of Offending Behaviour . Basingstoke: Palgrave
Macmillan .
Heath , J . ( 2008 ) Business ethics and moral motivation: A criminological perspective . Journal of Business Ethics
83 (4) : 595 – 614 .
Howe , M . A . and Malgwi , C . A . ( 2006 ) Playing the ponies: A $ 5 million embezzlement case . Journal of Education
for Business 82 (1) : 27 – 33 .
Klenowski , P . M . , Heith , C . and Mullins , C . W . ( 2010 ) Gender, identity, and accounts: How white collar offenders
do gender when making sense of their crimes . Justice Quarterly 28 (1) : 46 – 69 .
LaSalle , R . E . ( 2007 ) Effects of the fraud triangle on students ’ risk assessments . Journal of Accounting Education
25 (1/2) : 74 – 87 .
Levi , M . ( 2002 ) Suite justice or sweet charity? Some explorations of shaming and incapacitating business
fraudsters . Punishment & Society 4 (2) : 147 – 163 .
Levi , M . ( 2008 ) The Phantom Capitalists: The Organization and Control of Long-fi rm Fraud , 2nd edn. Aldershot:
Ashgate .
Levi , M . ( 2010a ) Individual differences and white-collar crime . In: P. Wilcox and F.T. Cullen (eds.)
Encyclopaedia of Criminological Theory . London: Sage Publications , pp. 469 – 473 .
Levi , M . ( 2010b ) Serious tax fraud and non-compliance: A review of evidence on the differential impact of
criminal and noncriminal proceedings . Criminology & Public Policy 9 (3) : 493 – 513 .
Levi , M . and Burrows , J . ( 2008 ) Measuring the impact of fraud in the UK: A conceptual and empirical journey .
British Journal of Criminology 48 (3) : 293 – 318 .
Loebbecke , J . K . , Eining , M . M . and Willingham , J . J . ( 1989 ) Auditors ’ experience with material irregularities:
Frequency, nature, and detectability . Auditing: A Journal of Practice & Theory 9 (1) : 1 – 28 .
Lou , Y . I . and Wang , M . L . ( 2009 ) Fraud risk factor of the fraud triangle assessing the likelihood of fraudulent
nancial reporting . Journal of Business & Economics Research 7 (2) : 61 – 78 .
Marden , R . and Edwards , R . ( 2005 ) Internal controls for the small business: Skimming and the fraud triangle .
Internal Auditing 20 (1) : 3 – 10 .
Mills , C . W . ( 1940 ) Situated actions and vocabularies of motive . American Sociological Review 5 (6) : 904 – 913 .
Nettler , G . ( 1974 ) Embezzlement without problems . British Journal of Criminology 14 (1) : 70 – 77 .
Ones , D . and Viswesvaran , C . ( 2001 ) Integrity tests and other criterion-focused occupational personality scales
(COPS) used in personnel selection . International Journal of Selection and Assessment 9 (1/2) : 31 – 39 .
Piquero , N . L . ( 2012 ) The only thing we have to fear is fear itself: Investigating the relationship between fear of
falling and white-collar crime . Crime & Delinquency 58 (3) : 362 – 379 .
Punch , M . ( 1996 ) Dirty Business: Exploring Corporate Misconduct . London: Sage .
Punch , M . ( 2000 ) Suite violence: Why managers murder and corporations kill . Crime, Law and Social Change
33 (3) : 243 – 280 .
15
© 2013 Macmillan Publishers Ltd. 0955–1662 Security Journal 1–15
The Fraud Triangle revisited
Riemer , S . H . ( 1941 ) Embezzlement: Pathological basis . Journal of Criminal Law and Criminology 32 (4) :
411 – 423 .
Romney , M . B . , Albrecht , W . S . and Cherrington , D . J . ( 1980 ) Auditors and the detection of fraud: The authors
provide a unique fraud-risk-evaluation questionnaire . The Journal of Accountancy 149 (5) : 63 – 69 .
Sakurai , Y . and Smith , R . G . ( 2003 ) Gambling as a motivation for the commission of nancial crime . Trends and
Issues in Crime and Criminal Justice 256 : 1 – 6 .
Schnatterly , K . ( 2003 ) Increasing rm value through detection and prevention of white-collar crime . Strategic
Management Journal 24 (7) : 587 – 614 .
Shover , N . and Hochstetler , A . ( 2006 ) Choosing White-collar Crime . Cambridge, UK: Cambridge University
Press .
Slapper , G . and Tombs , S . ( 1999 ) Corporate Crime . London: Longman .
Spencer , J . C . ( 1959 ) A study of incarcerated white-collar offenders . In: G. Geis (ed.) White-collar Criminal: The
Offender in Business and the Professions . New York: Atherton Press , pp. 335 – 346 .
Stotland , E . ( 1977 ) White collar criminals . Journal of Social Issues 33 (4) : 179 – 196 .
Sutherland , E . H . ( 1940 ) White-collar criminality . American Sociological Review 5 (1) : 1 – 12 .
Sutherland , E . H . ( 1941 ) Crime and business . Annals of the American Academy of Political and Social Science
217 (1) : 112 – 118 .
Sutherland , E . H . and Cressey , D . R . ( 1960 ) Principles of Criminology . Philadelphia: Lippincott .
Sykes , G . M . and Matza , D . ( 1957 ) Techniques of neutralization: A theory of delinquency . American Sociological
Review 22 (6) : 664 – 670 .
Weisburd , D . and Waring , E . ( 2001 ) White-collar Crime and Criminal Careers . New York: Cambridge University
Press .
Wheeler , S . ( 1992 ) The problem of white-collar crime motivation . In: K. Schlegel and D. Weisburd (eds.) White-
collar Crime Reconsidered . Boston: Northeastern University Press , pp. 108 – 123 .
Willott , S . , Griffi n , C . and Torrance , M . ( 2001 ) Snakes and ladders: Upper-middle class male offenders talk about
economic crime . Criminology 39 (2) : 441 – 466 .
Witzel , A . ( 2000 ) The problem-centered interview . Qualitative Social Research 1 (1) , Article 22 .
Wolfe , D . T . and Hermanson , D . R . ( 2004 ) The fraud diamond: Considering the four elements of fraud . The CPA
Journal 74 (12) : 38 – 42 .
Zietz , D . ( 1981 ) Women Who Embezzle or Defraud: A Study of Convicted Felons . New York: Praeger .
... One of the criticisms made to the fraud triangle is that it does not encapsulate the premises of fraud and does not sufficiently capture the characteristics of white-collar crimes other than embezzlement (Dorminey et al., 2012b;Ramamoorti et al., 2009;Huber, 2017;Heath, 2008;Schuchter and Levi, 2016). Heath (2008: 595) and Schuchter and Levi (2016: 117) state that although financial pressure or motivation are seen as necessary for the existence of fraud, many fraud acts are committed by wealthy individuals who are in the upper management levels of the organization. ...
... Different types of fraud may require different causes and circumstances. The reason why a person devises a crime may be different from the reason why the crime is committed, and the reason for the continuation of the crime may be completely different from these two (Schuchter and Levi, 2016). Stating that the generalization of the fraud triangle should be evaluated carefully, Donegan and Ganon (2008) argue that the fraud triangle cannot be applied to all types of frauds and emphasize that the fraud triangle should not be qualified as a "general theory of financial crime" that provides a universally valid explanation. ...
... According to this analogy, elimination of any of these elements will make it impossible for fraud (or fire) to emerge. Although Schuchter and Levi (2016) do not dispute that all fire triangle elements are necessary to start a fire, they point out that all fraud triangle elements are substitutable and emphasize that this analogy overlooks the substitutability. In international auditing standards and literature on financial fraud, it is mostly presumed that all elements are necessary for financial crimes to take place. ...
... Fraud triangle theory explains that someone commits an act of fraud because of the encouragement of three main elements, namely pressure, opportunity, and rationalization (Cressey, 1964). Several previous studies add to the elements that make up the Fraud Triangle Theory (Imoniana et al., 2016;Maulidi, 2020;Schuchter & Levi, 2016). This research finds that social relations in organizations can pave the way for budget fraud if the relationship leads to exclusivity. ...
Article
Full-text available
The utilization of the Village Fund budget has resulted in many improvements in facilities and infrastructure for rural areas. Still, we cannot deny there is a misuse of the funding in some village governments. In this study, we aimed to understand how fraud occurs in village government institutions because there is a patron-client relationship in a bureaucratic environment. This research is an ethnographic study using data collection methods in the form of field observations, documenting files that have relevance for research, and in-depth interviews with informants by applying the snowball technique to obtain informants. The field findings show that the social relations between the political sponsor (patron) and the head of the village government (the client) make the internal control system that regulates financial procedures not run properly. In the end, it opens opportunities for the patrons to misuse the village budget. Fraud behavior is not limited to causing economic losses but also has implications for damaging the social joints of village community life. This research offers a village government monitoring model expected to help district governments develop a monitoring system.
... The empirical model includes a set of control variables to capture the independent influence of independent directors' cash pay on corporate fraud. Control variables are selected based on extant literature in this research stream(Bruner et al., 2008;Conyon & He, 2016;Kong et al., 2019;Liao et al., 2019;Persons, 2012;Qiu et al., 2019;Schuchter & Levi, 2016). Therefore, the empirical model includes independent director's characteristics such as IN-DEP_EXPERTISE, INDEP_EDUCATION, FEM_INDEP, and INDEP_AGE. ...
Article
This study empirically investigates the relationship between independent directors’ cash compensation and the likelihood of corporate fraud. Using data of 2542 Chinese firms and 17239 firm years from 2010 to 2017, the findings of logistic regression, firm-fixed effects, instrumental variable specification, and propensity score matching models show that there is a negative association between cash compensation of independent directors and corporate fraud. Our findings suggest that if independent directors are treated with higher cash compensation, it enhances the board’s independence and makes the effective monitoring over management behaviors and financial reporting process. On contrary to non-SOEs, the findings also document that the negative association between independent directors’ compensation and corporate fraud is pronounced in SOEs. The study not only shows the impact of independent director’s compensation on firm fraud beyond agency and contract theories but also creates policy implications regarding independent director’s compensation in particular scenario of emerging economies.
... The fraud triangle (consisting of need, pressure and rationalisation of corruption) is a framework designed to explain the reasoning behind a worker's decision to commit workplace fraud (Cressey, 1953;Schuchter and Levi, 2016). The underlying principle is that removing one of the triangle elements is the key to reducing the propensity towards corrupt activities. ...
Article
Purpose Business-to-government corruption has destroyed many businesses and debilitated numerous countries. The paradox of plenty, or the curse of resources, is exacerbated in emerging oil and gas economies, where corruption is rampant. Corruption most frequently occurs within the tendering stage of construction projects and the current debate fails to arrest this ubiquitous boundless construct in small island developing states (SIDSs). The purpose of this study is to explain how the unique features of SIDS contributes to an understanding of B2G corruption during construction tendering. Design/methodology/approach This study elucidates corruption in the tendering process through the lens of collective action and principal–agent theories. Interviews with three experts and a questionnaire survey with 115 practitioners evaluated corruption in Trinidad’s construction industry. Principal component analysis reduced 33 corruption variables to 5 primary causes. In addition, the relative importance of potential solutions for curtailing corruption was assessed. Findings The derived factors highlight that governance within SID oil and gas economies, inadequate tender procedures and practices, reprehensible business growth strategies, unethical misconduct and the social networking context characterise public infrastructure tendering. The recommendations for minimising corruption in tendering are grounded in behaviour and deterrence theories and infused with technological advances. Research limitations/implications Using surveys and interviews circumvents the limitation of the inability to measure corruption because of the confines of respondents’ recall triggers. However, corruption is mediated by cultural norms, which limits the generalisation of the findings. Originality/value The study concludes that corruption results from a lack of transparency in the construction supply chain. It leads to an awareness gap between project stakeholders, which is a major risk factor and source of mistrust. The result is a lack of traceable processes and coordination among stakeholders. Consequently, the study fills the gap in responsible socio-economic consumption in SIDSs.
... (Schuchter & Levi, 2016). In 1950, criminology Professor Donald Cressey coined the term "scam" by claiming that human conduct is motivated by motivations-wondering why individuals International Journal of Economics, Commerce and Management, United Kingdom ...
Article
Full-text available
A profession in the corporate world, regulatory bodies, and structured finance are becoming more interested in effective internal control to prevent fraud. So, the foremost goal of this research will be to come up with a model to show how impactful forensic accounting is in the intense attention to rigid internal control in the Iraqi context. This article also uses an inductive quantitative research approach to obtain the data, and 230 responses were received from employees working for 110 Iraqi companies, all registered on the Iraqi Stock Exchange. This study used SPSS, a statistical package for study areas, and Smart PLS 3.3 to test hypotheses. The research reveals that the instrumentation of forensic accounting, such as forensic accounting competence and proactive fraud auditing, has a significant impact on fraud prevention in Iraq. Nevertheless, the results show that forensic accounting techniques don't considerably affect its use. Besides that, there seems to be an explanation-based on verification that internal control challenges processes appear negatively to mitigate the effects of community engagement for forensic accounting and fraud prevention in an organization. On account of this, Effective internal control practice enhances the forensic accounting and fraud prevention link.
Article
Full-text available
In the process of urbanization, a brisk building boom triggers a series of environmental problems. Construction contractors usually present environmentally fraudulent behaviors, i.e., greenwashing behaviors (GWBs), to legitimize their activities, ultimately hindering the sustainable development of the society. However, the formation mechanism of the contractors’ GWBs is still unclear. Through the lens of fraud GONE theory (i.e., greed, opportunity, needs, and exposure), this study applies the multi-group structural equation model (SEM) and fuzzy-set qualitative comparative analysis (fsQCA) to examine the formation mechanisms of GWBs. The results of SEM show the relationships between four fraud factors and GWBs. Additionally, the projects are grouped into three categories: government investment projects, private–public-partnership (PPP) projects, and private investment projects. The results of multi-group SEM reveal that the effects of four fraud factors differ significantly across projects with different investment characteristics. The results of fsQCA suggest that there are three typical driving mechanisms for GWBs. Furthermore, this study develops a project information transparency framework and a “greenwashing tree” to form a systematic understanding of GWBs. Finally, on these bases, this study provides targeted suggestions and policy recommendations for governing contractors’ GWBs.
Article
The purpose of this study was to examine the effect of fraud prevention, detection, investigative audits, and professionalism of auditor on efforts to minimize fraud in financial statements. This study uses primary data by using questionnaires where the questionnaires are distributed to internal auditors who work in companies in Makassar City, Indonesia. Sample determination was done by using convenience sampling. The number of respondents in this study were 52 internal auditors. Data analysis to test the hypothesis was done by using multiple regression test. The results of this study indicate that partially, preventive measures and professionalism of auditor have significant effect on efforts to minimize fraud, while partially fraud detection and investigative audits have no significant effect on efforts to minimize fraud. However, simultaneously, the four variables of fraud prevention, detection, investigative audit, and professionalism of auditor have a significant effect on effort to minimize fraud.
Article
Purpose The alienation of megaproject environmental responsibility (MER) behavior is destructive, but its mechanism has not been clearly depicted. Based on fraud triangle theory and the fuzzy set qualitative comparative analysis (fsQCA) method, this study explored the combined effect of antecedent factors on alienation of MER behavior. Design/methodology/approach Based on the fraud triangle theory and literature review, eight influencing factors associated with the alienation of MER behavior were first identified. Subsequently, the fuzzy-set qualitative comparative analysis was used in this study to reveal configurations influencing alienation of MER behavior. Findings The study found nine configurations of MER behavioral alienation antecedent factors, integrated into three types of driving modes, i.e. “economic pressure + learning effect,” “institutional defect + moral rejection,” and “information asymmetry + economic pressure + expectation pressure.” Originality/value By analyzing the configuration effects of various induced conditions, this study puts forward a comprehensive analysis framework to solve the alienation of MER behavior in the megaprojects and a practical strategy to control alienation of MER behavior.
Article
Although previous studies have explored the disciplinary procedures and sanctions by PABs, the focus of these studies has often been generalized to all forms of infringements. This has prevented specific attention on the most severe ethical breaches by PAB members, that is, offences leading to exclusion. Consequently, we do not know their prevalence, the features of these behaviors or the motivating factors for their perpetration by members of the UK's PABs. Clarity on these issues is in the public interest given the centrality of the role of the accounting profession to the efficient functioning of the financial system. We used the fraud triangle theory to shed light on these issues. Our analysis is based on the entire population of 141 serious cases that led to members’ exclusion. We developed an analytical framework that focused on the nature of the infringements, their prevalence amongst the PABs, and the variety of explanations provided by the culprits. Our analysis shows that criminal convictions and breach of ethical guidance are the two major causes of exclusion. Our findings have implications for the PABs in their attempts to ensure their members’ ethical behavior and the adequacy of their disciplinary process.
Article
Recent developments in routine activities theory have sought to conceptualize the notion of capable guardianship, as well as to broaden the application of the theory to the corporate crime context. Building on this work with systematically collected qualitative data, we examine the mechanisms in which offenders commit corporate financial fraud and identify the failures in guardianship. In addition to the unique dimensions of corporate crime already identified (i.e., specialized access to targets), our work highlights the need to consider guardian–offender overlap, or instances in which those tasked with guardianship responsibilities become motivated offenders. Our findings suggest financial regulations focusing on adding layers of guardians may be insufficient. They also have broader implications for understanding guardian capability in other forms of crime—namely, the need to consider the costs and benefits of intervention, willingness and ability to intervene in differing contexts, and how these dimensions of guardianship shape offender risk perceptions.
Article
For more than three decades, rational-choice theory has reigned as the dominant approach both for interpreting crime and as underpinning for crime-control programs. Although it has been applied to an array of street crimes, white-collar crime and those who commit it have thus far received less attention. Choosing White-Collar Crime is a systematic application of rational-choice theory to problems of explaining and controlling white-collar crime. It distinguishes ordinary and upperworld white-collar crime and presents reasons theoretically for believing that both have increased substantially in recent decades. Reasons for the increase include the growing supply of white-collar lure and non-credible oversight. Choosing White-Collar Crime also examines criminal decision making by white-collar criminals and their criminal careers. The book concludes with reasons for believing that problems of white-collar crime will continue unchecked in the increasingly global economy and calls for strengthened citizen movements to rein in the increases.
Article
This paper examines the area of organizational deviance leading to avoidable death, injury and harm. Corporate activity creates a large number of victims and yet this area is neglected in the literature. Evidence indicates that business kills, maims and poisons; that we are dealing with organizational deviance; but that iy is difficult, legally and organizationally, to pin down precisely the motives and behaviour of managers in such cases. Significant corporate violence is rooted in a multiplicity of situational factors, the embeddness of socio-economic activity and post-hoc rationalizations. The paper highlights one specific strand in business deviance; how structure and culture shape the managerial mind and influence behaviour in ways that foster deviance and cause harm. A range of social-psychological processes are examined that open opportunities, and rationalizations, for rule-breaking. Corporations can create an environment that leads to risk-taking, and even recklessness, resulting in high casualties and severe harm. Companies then get away with "murder" because the law and the courts are not geared to organizational deviance aid corporate violence. The organization causes the deviance and then forms the legal and institutional defence against facing up to the full consequences of the deaths, injuries and suffering among victims.
Article
Focuses on the use of the elements of the fraud diamond to prevent and detect accounting fraud. Essential traits for committing fraud; Steps in assessing fraud risk through the use of the fourth element of the diamond; Ways for auditors to prevent potential fraud.