How Fraud Offenders Rationalize Financial Crime

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HOW FRAUD OFFENDERS RATIONALIZE
FINANCIAL CRIME
Iva Charlopova, Paul Andon, and Clinton Free
INTRODUCTION
Fraud and related financial crime is a pervasive organizational problem,
placing a substantial impost on business activity. The Association of Certified
Fraud Examiners (ACFE) (2018) estimates that globally, organizations lose
about 5 percent of their revenue annually to fraud. Fraud also has serious
implications for employee morale, business relations, reputation and brand
strength, relations with regulators, and share price (Couch 2017;Pricewa-
terhouseCoopers 2018). Furthermore, fraud appears to be on the rise
(PricewaterhouseCoopers 2018), particularly in the area of cybercrime. Pol-
icymakers, legislators, and organizations continue to struggle to mitigate the
prevalence of financial crime, highlighting the need for better access to
disparate extant knowledge to inform best practice in the fight against
financial crime.
One area lacking consolidated knowledge is how offenders rationalize
their behavior. Of the three key factors prescribed for understanding financial
crime –opportunity, incentive/pressure, and rationalization (Cressey 1953),
commonly known as the “fraud triangle”2rationalization “remains a
relative mystery”(Murphy 2012, p. 242) to both scholars and practitioners.
The lack of coherent knowledge about rationalization is perhaps most starkly
reflected in the absence of insight and direct guidance provided by auditing
and anti-fraud standards on how rationalization should be understood or
approached in preventing and detecting fraud. Synthesized knowledge about
rationalization from scholarly work is also lacking. The aim of this chapter is
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to address such issues by reviewing extant research on rationalization. This
chapter also offers reflections on the current state of this research agenda in
order to direct research effort to underdeveloped aspects of important ele-
ments in financial crime.
The rest of this chapter has the following structure. The first section
provides a brief background of the concept of rationalization. The next
section offers a review and synthesis of current rationalization research and
identifies key themes, followed by a discussion of future research oppor-
tunities and discussion questions. The final section offers concluding
remarks.
RATIONALIZATION: BACKGROUND AND
ACCEPTED DEFINITIONS
Rationalization is a complex phenomenon, invoked in various disciplines. For
example, within cognitive psychology, rationalization is often discussed in
terms of excuse-making and ego-defense mechanisms. Conceptions of
rationalization are also central to social psychological exploration of
impression management and decision-making heuristics, as well as in the
theory of neutralization (Hall and Holmes 2008). In criminology, a range of
theoretical approaches explore the concept. Despite straddling different
domains, common features of rationalization persist including:
•self-serving explanations;
•a focus on making behavior appear more justifiable to self and others;
•degrees of self-deception;
•manifestation in both the conscious and unconscious mind;
•reduced feelings of behavioral responsibility and/or anxiety; and
•diminished salience of moral, legal, and/or ethical concerns.
These features highlight the connection between rationalization and self-
narrative in one’s thought processes and/or decision-making. Narrative psy-
chology argues that narratives play an important role in making sense of
40 Iva Charlopova et al.

one’s situation, experiences, and actions. When viewed from the perspective
of a narrative, rationalization is seen as a flexible mode of thought, where
ideas and experiences can be filtered to produce an acceptable and coherent
connection between how people see themselves and what they do, filling gaps
and smoothing out contradictions to maintain a pro-social sense of self. This
broad characterization of rationalization is evident in the following review of
extant research on rationalization.
REVIEW APPROACH
Identifying the relevant literature involved a four-stepapproach.Thefirst
step was to identify broader theories in criminology and social psychology
relevant to a normative understanding of rationalization. The next step
involved identifying the rationalization research in accounting from a
search of the top 20 accounting journals between 2000 and 2018 with
each candidate individually reviewed for relevance. Using relevant pub-
lisher and other databases (e.g., Emerald Publishing, Elsevier, ENSCO
Publishing, and ProQuest), a search of these journals for the presence of
the word “rationalization”in paper keywords and abstract text occurred.
Third, the bibliographies of identified papers were reviewed to identify
further work of potential relevance, including those published in other
disciplines (e.g., criminology, psychology, and sociology). A search of
journals outside the accounting literature identified through this approach
ensued to identify other relevant papers. A final step involved identifying
the more frequent contributors on rationalization in financial crime and
searching for any of their relevant papers that may have been otherwise
missed.
To initially organize the collected literature, reading each paper’s
abstract took place to discern key themes that could sensibly organize the
review. Once categorized, papers were then read for deeper understanding
of their content, and to confirm their initial classification. This process
permitted multiple classifications when warranted. This process resulted in
five key themes: (1) theories of rationalization; (2) how rationalization
sustains financial crime; (3) types of rationalization; (4) factors influencing
rationalization; and (5) critical perspectives on rationalization.
How Fraud Offenders Rationalize Financial Crime 41

RATIONALIZATION: KEY THEMES
This section discusses various themes involving rationalization.
Theories of Rationalization
Four broad theories, variously grounded in social psychology and crimi-
nology, have been introduced over the past 75 years to characterize the
nexus between rationalization and a range of illegitimate behavior,
including financial crime. The first such theory was Sutherland’stheoryof
differential association (Sutherland 1949,Sutherland and Cressey 1970,
Donegan and Ganon 2008). Shifting the focus away from personal and
social pathologies (e.g., poverty, poor upbringing, or emotional distur-
bances), Sutherland asserted that criminal behavior is learned through
interactions with deviant groups. Through these associations, individuals
learn illegitimate motives and attitudes, and associated rationalizations.
Several studies support the relevance of this theory for understanding
rationalization in financial crime (e.g., Piquero, Tibbetts, and Blankenship
2005;Lokanan, 2018a). For example, Lokanan reveals that individuals
involved in three major financial crime events (Livent, WorldCom, and
Enron) were able to rationalize their misconduct through associations with
criminal colleagues, with their level of involvement depending on the “fre-
quency and duration of the contact with the ‘criminal’individuals”
(Lokanan 2018a,p.87).
Almost a decade later, sociologists Gresham Sykes and David Matza
sought to build on Sutherland’s work by focusing on the content of what was
learned through processes of differential association. Sykes and Matza pro-
posed that individuals learn neutralizations (techniques to self-justify), which
they use to validate acts otherwise perceived to be incongruent with their
moral beliefs and internalized norms (Sykes and Matza 1957;Minor 1981;
Thurman 1984;Hollinger 1991). Sykes and Matza initially identified five
techniques of neutralization: denial of responsibility, denial of injury, denial
of victim, condemnation of the condemner, and appeal to higher loyalties.
Other studies confirm the applicability of neutralization to financial crime
(Benson 1985;Hollinger 1991;Gottschalk and Smith 2011;Stadler and
Benson 2012;Dellaportas 2013). For example, Benson, who interviewed 30
42 Iva Charlopova et al.

white-collar offenders, reports that they used neutralization techniques that
varied according to the type of offense. For instance, fraud offenders were
more likely to deny their actions or shift blame, while embezzlers often
claimed to be subject to extraordinary circumstances that prompted
offending.
Developed around the same time as neutralization theory, cognitive
dissonance (Festinger 1957;Aronson 1968;Wicklund and Brehm 1976)
focuses on further theorizing the intention/purpose behind rationalization.
Cognitive dissonance theory explains this intention/purpose as a desire to
maintain consistency between one’s actions and one’s beliefs/attitudes.
When contradictions emerge, individuals feel dissonance/unease and seek
to reduce such feelings by changing their behavior, changing their relevant
belief/attitude, or rationalizing their behavior. In this context, ration-
alization is a powerful avenue for reconciling dissonant feelings, as changing
behaviors (particularly after the fact) and authentically altering beliefs can
be more difficult (Murphy and Dacin 2011). Although some observe that
research examining cognitive dissonance in financial crime is scarce
(Trompeter, Carpenter, Jones, and Riley 2014), Hobson, Mayhew, and
Venkatachalam (2012) examine speech samples of CEOs during earnings
conference calls to analyze nonverbal vocal cues of cognitive dissonance
(e.g., tone of voice, facial expressions, body language, and gestures). Their
findings suggest that vocal markers of dissonance relate to financial state-
ment fraud, but those markers can be mollified when effective ration-
alizations are mobilized.
Finally, social psychologist Albert Bandura developed the cognitive
theory of moral disengagement (Bandura 1991,1999,Bandura, Barbar-
anelli, Caprara, and Pastorelli 1996). Like cognitive dissonance, this theory
focuses on disjunctures between actions and beliefs, but with an emphasis
on how morality mediates action. Bandura asserts that one’s moral stan-
dards are upheld and regulated through internalized consequences,
primarily self-satisfaction and self-condemnation. However, these self-
regulatory mechanisms only operate if activated and can be disengaged
through certain psychosocial processes that allow individuals to reconcile
illegitimate behavior with their moral standards (Bandura 1991). Many of
these moral disengagement processes (moral justification, displacement
of responsibility, diffusion of responsibility, disregard or distortion of
consequences, and dehumanization) closely resemble the neutralization
How Fraud Offenders Rationalize Financial Crime 43

techniques mentioned earlier, although two additional techniques are
identified: euphemistic labeling and advantageous comparison (Ribeaud and
Eisner 2010). Few studies empirically explore aspects of moral disengage-
ment in the rationalization of financial crime. An exception is Brown who
finds that managers involved in illegitimate earnings management practices
favorably compare/discount their own actions against others, affirming the
salience of advantageous comparison, and highlighting that public exposure
of egregious financial reporting practices may actually allow others to
“conclude that their own behavior is relatively appropriate by comparison”
(Brown 2014,p.871).
In summary, these theories generally support the argument that financial
crime should not be limited to understanding criminogenic tendencies.
Otherwise law-abiding individuals can engage in financial crime where they
can maintain their pro-social self-image or deflect feelings of guilt through
rationalization. However, interesting connections between these theories and
the rationalization of financial crime remain underspecified. For example, the
literature contains differing views about the connection between neutraliza-
tion and rationalization. A comprehensive review of neutralization research
by Fritsche (2005) suggests that neutralization (occurring before an illegiti-
mate act) and rationalization (developed after an act has been committed) are
distinguishable through their timing. However, whether this distinction is
meaningful in the context of financial crime is debatable (Trompeter, Car-
penter, Desai, Jones and Riley 2013;Trompeter et al. 2014), with other
research asserting that rationalizations can occur prospectively (to anticipate
guilty feelings) and retrospectively (to reduce negative feelings after the fact)
(Anand, Ashforth, and Joshi 2004;Budiman, Roan, and Callan 2013).
Similarly, the relation between attitudes and rationalization is relatively
opaque. Although attitudes/beliefs (as generalized perspectives on illegitimate
conduct) and rationalization (as a situated perception that can override
generalized attitudes) are distinguishable (Murphy and Dacin 2011), this
distinction requires further unpacking to determine how they interact and
influence each other over time. For example, if attitude and rationalization
are correlated, fraud prevention methods would be even more important
because once an individual commits fraud, rationalization could serve to
strengthen an attitude favoring crime and enable the offender to continue to
offend (Murphy 2012).
44 Iva Charlopova et al.

How Rationalization Operates
Another important research perspective has been to develop more specific
knowledge on how rationalizations take effect. The two areas of focus are
articulating pathways through which rationalizations arise, and how
rationalizations can escalate offending.
On pathways to offending, Murphy and Dacin (2011) develop a tripartite
framework to describe psychological avenues through which otherwise law-
abiding individuals may engage in fraud. These pathways –lack of awareness
(situational factors, such as authority figures or organizational climate, that
overwhelm one’s moral sensibilities), intuition (“gut decisions”on the
acceptability of offending in the circumstances), and reasoning (cognitive
evaluation of offending risks and benefits) –variously highlight ration-
alization as an important conduit to sustaining fraud without violating one’s
moral values. Similarly, Andon, Free, and Scard (2015) identify four path-
ways to fraud –crisis responders, opportunity takers, opportunity seekers,
and deviance seekers –differentiated by an individual’s general and situa-
tional attitude toward legitimate/illegitimate means of achieving financial
goals. These pathways illustrate that ethical individuals can become entan-
gled in financial crime based on situational circumstances, and highlight the
complex confluence of contextual, situational, and attitudinal elements that
impact rationalization.
The second point of focus is how rationalization connects to escalated
offending. Ashforth and Anand (2003) describe a progression of events that
enables corruption to spread throughout an organization and become
embedded into everyday practices. For them, organizational responses to
corrupt acts (i.e., whether they are condemned, ignored, or valorized) affect
the cognitive dissonance experienced from the initial offense. Anand et al.
(2004) suggest that more permissive responses permit offenders to more
easily rationalize both retrospectively (easing guilt) and prospectively (fore-
stalling dissonance related to repeated corrupt acts). Zyglidopoulos and
Fleming (2008, p. 267) explain the movement from innocent bystander to
guilty perpetrator through a staged framework described as a “continuum of
destructiveness.”Initial offenders assume rationalizations they observe
around them or accept illegitimate acts that are either routine or unques-
tioned (Ashforth and Anand 2003). Unabated, such influences have the
potential to create a vicious loop of escalating financial crime and
How Fraud Offenders Rationalize Financial Crime 45

rationalization, introducing individuals to environments where increasingly
questionable behavior are seen as acceptable (Tenbrunsel and Messick 2004;
Zyglidopoulos and Fleming 2008;Reinstein and Taylor 2017). Similarly,
Suh, Sweeney, Linke, and Wall (2018) report how convicted financial exec-
utives consistently described how their offending emerged incrementally such
that the exact point of legal transgression was unclear to them. Further,
rationalizations that overwhelm a sense of moral culpability can open
opportunity spaces for escalated offending over time (Zyglidopoulos,
Fleming, and Rothenberg 2009).
In summary, the psychological pathways to fraud describe situational
factors that influence an offender’s ability to rationalize criminal behavior as
moral and ethical. Rationalizations can also encourage the escalation and
organizational spread of fraud through exposing newcomers to situationally
accepted illegitimate activities. The frameworks presented also underscore
that rationalization is not only limited to individual and conscious choice but
can also be influenced by shared circumstances and narratives that normalize
financial crime. In short, incrementalism and normalization are important
elements to understanding rationalization, and raise major implications for
further understanding how to prevent the spread of fraud throughout an
organization.
Identified Rationalization Techniques
The literature contains a range of closely corresponding typologies and
classifications of rationalization techniques (Cromwell and Thurman 2003;
Ashforth and Anand 2003;Anand et al. 2004;Geva 2006;Murphy and
Dacin 2011;Murphy 2012;Azarian and Alalehto 2014;Free 2015). These
classifications build upon the earlier mentioned techniques of neutralization
(Sykes and Matza 1957) and moral disengagement (Bandura 1991). The most
commonly discussed rationalizations can be split into four categories: (1) shift
of responsibility (by referring to demands, pressures, or impositions
imposed), (2) impact of social interaction (reflecting the impact of actions or
attitudes of other parties), (3) denial of consequences (negating or trivializing
offending impacts), and (4) a catch-all “other”category. Table 3.1 describes
these categories, which is not exhaustive.
46 Iva Charlopova et al.

Table 3.1. Explanation and Examples of the Major Techniques of Rationalization.
Category Rationalization Explanation Example
Shift of
responsibility
Displacement of responsibility Blame someone else or the effect of peer pressure, such as
when a subordinate obediently follows the requests of a
superior or acts as part of an offending team.
“I was told to do it.”“I was just
part of a team that was doing it.”
Denial of responsibility Perceive oneself as a victim of one’s environment. The offender
feels that he or she has no other choice than to commit a crime,
due to circumstances outside of that person’s control such as
gambling, addictions, or a family necessity.
“I had no choice.”
Impact of social
interaction
Advantageous comparison Compare otherwise reprehensible behavior to more severe
crimes, making the offender’s act seem “not so bad.”
“This is nothing compared to…”
Appeal to higher loyalties, moral
justification
Claim that the behavior has a higher social or moral purpose and
is not for one’s own benefit. This situation can include a
perception of acting to benefit a group, one’s family, the
company, or society as a whole.
“I’m protecting the company.”
Condemning the condemners Blame the system for one’s offending and shift the blame from
oneself to those who disapprove of their actions.
“The system is corrupt.”
Diffusion of responsibility Maintain that everybody does it, thereby denouncing one’s
responsibility. This claim is common when a division of labor
exists with team members performing different parts of a task but
can also occur with group decision-making when each member
of the group contends that the group, as a collective, is
responsible for a poor decision (Tsang 2002).
“Everyone else was doing it.”
How Fraud Offenders Rationalize Financial Crime 47

Table 3.1. (Continued)
Category Rationalization Explanation Example
Denial of
consequences
Denial of injury Claim that the victim did not actually suffer any substantial harm. “I’m not hurting anyone.”“The
business can afford it.”“I’ll pay
it back.”
Denial of victim Argue that the victim deserves the consequences afforded to
them or that the offender is acting in retaliation to punish the
victim.
“They had it coming.”
Other Metaphor of the ledger (Anand
et al. 2004),
claim of entitlement (Benson
1985)
Claim a feeling of entitlement to engage in deviant acts because
of the time and effort one has dedicated in the job.
“I deserved more money.”
Postponement Delay the consideration of one’s actions for the time being
(Cromwell and Thurman 2003).
“I’ll worry about it later.”
Euphemistic labeling (Bandura
1991)
Describe an offense in favorable terms to disguise it as accept-
able or even respectable.
Earnings “management”instead
of “manipulation”(Geva 2006)or
“aggressive”instead of “illegal”
accounting practices (Ten-
brunsel and Messick 2004).
Note: This table describes and exemplifies the most common rationalizations used by
offenders to justify immoral behavior.
Source: Adapted from Murphy (2012) and Free (2015).
48 Iva Charlopova et al.

Although some criticize the lack of a “complete”model of all available
rationalization techniques (e.g., Kaptein and Van Helvoort 2018), Fritsche
(2002, p. 375) contends that variations in rationalization techniques are
theoretically unlimited because rationalizing is a “flexible cognitive and lin-
guistic device that can be adapted to a broad range of different situations.”
Maruna and Copes (2005) further maintain that concentrating on under-
standing the purpose and function of rationalization is more important.
Factors Influencing Rationalization
Researchers have identified many individual differences and societal influ-
ences that affect an individual’s capacity to rationalize. The following dis-
cussion involves the extant literature on each of these.
Individual Differences
Personality traits commonly connected to an individual’s sense of culpability
in financial crime include positive extroversion, disagreeableness, and
neuroticism (Alalehto 2003); overconfidence (Schrand and Zechman 2012);
lack of self-control (Davidson, Dey, and Smith 2015); narcissism (Domino,
Wingreen, and Blanton 2015;Harrison, Summers, and Mennecke 2018;
Vousinas 2019); Machiavellianism (Murphy 2012;Harrison et al. 2018); and
psychopathy (Bailey 2015;Harrison et al. 2018). Perceived status can also
play a role in rationalization. Stadler and Benson (2012) find that white-collar
offenders are generally less willing to accept a criminal label and express less
guilt than other criminals due to self-perceived status and professional
respectability. Willott, Griffin, and Torrance (2001) further show that
working-class white-collar offenders tend to blame themselves and use
excuses, whereas middle-class offenders use linguistic euphemisms to make
their offenses appear acceptable. In interviews with Swedish entrepreneurs,
Azarian and Alalehto (2014) find that those negatively disposed to regulation
tend to perceive unfair treatment and rationalize entitlement to illegitimate
financial gain, while those more positively disposed to regulation accept the
immorality of their offending but rationalize to deny responsibility. Klenowsi,
Copes, and Mullins (2011) find that gender constrains the rationalizations
available to white-collar offenders, based on cultural expectations of
How Fraud Offenders Rationalize Financial Crime 49

masculinity and femininity. Men were more likely to claim that their behavior
was normal and the result of competition in the corporate environment.
Women, on the other hand, were more likely to deny responsibility or claim
that the offense was done out of necessity, due to their perceived role as
caregivers.
Social Influences
Some criticize an emphasis on personality and individual factors as insuffi-
cient in understanding fraudulent behavior and how it is rationalized
(Peterson 2002;Morales, Gendron, and Guenin-Paracini 2014;Andon et al.
2015;Lokanan 2018b). Fraud is a socialized act, involving individuals,
organizations, and their environment (Ramamoorti 2008;Murphy and Free
2016;Lokanan 2018b). Thus, research also considers social influences on
rationalization.
The nexus between corporate culture and rationalization has drawn some
research interest. A corporate culture open to unethical behavior increases the
likelihood of financial crime by enabling employees to rationalize their
actions through the belief that no one cares (Cohen, Ding, Lesage, and Sto-
lowy 2010;Kumar, Bhattacharya, and Hicks 2018). Choo and Tan (2007)
find that corporate cultures preoccupied with monetary success encourage
employees to rationalize through an implied expectation that they must do
whatever is necessary to achieve financial goals (Campbell and G ¨
oritz 2014).
Through a wide-ranging survey, Murphy and Free (2016) similarly find that
an instrumental climate, which promotes decision-making in the individual’s/
organization’s best interests without regard for ethical concerns, is most
conducive to rationalizing fraud. Further, social influence strategies in orga-
nizational settings may assimilate employees into unethical corporate values,
beliefs, and norms (Ashforth and Anand 2003,Prabowo and Cooper 2016).
Social cues from the organization and coworkers may also strongly condition
individual employees’conception of appropriate behavior (Suh et al. 2018).
Another social dynamic drawing research interest is the manager–
subordinate relationship. In an experiment to study reporting choices and
rationalizations, Mayhew and Murphy (2014) find that participants are
significantly more likely to misreport when instructed to do so by an
authority figure, and thus rationalize their offense by displacing responsibil-
ity. Managers can similarly seek to displace responsibility onto subordinates
50 Iva Charlopova et al.

actually carrying out fraudulent activity (De Klerk 2017). Both studies show
this social dynamic has implications in a corporate environment where
employees are loyal to their superiors and willing to behave in the best
interest of the company at all costs.
Research also examines the influence of prolonged exposure to behavior
patterns of coworkers. In line with social identity theory, research examines
the effect that group norms and identifications have on rationalizing and
offending (Anand et al. 2004;Gino, Ayal, and Ariely 2009;Suh et al. 2018).
Interestingly, Anand et al. (2004) find that people can sustain more than one
group identity (e.g., professional and workplace) and can rationalize away
cognitive dissonance from offending by denying one of the identities (e.g.,
that of a professional accountant, with its ethical obligations) and over-
emphasizing the second identity (e.g., that of “Mr. Fix-It”or right-hand-man
to the CEO) (Dellaportas, Perera, Gopalan, and Richardson 2018).
In summary, research highlights the important role played by social and
situational factors in motivating and rationalizing fraud. Corporate culture,
peer behavior, identity and belonging, and pressure from authority all
potentially influence one’s capacity to rationalize offending as acceptable.
However, opportunities exist to add further knowledge of what makes people
susceptible to criminogenic practices, including studying the relationship and
interaction between individual and social factors, and wider societal, politi-
cal, and cultural influences.
Critical Perspectives on Rationalization
Despite the fraud triangle’s prevalence as a conceptual model in professional
auditing standards and forensic accounting education, critics contend that the
model on its own is inadequate for deterring and detecting fraud (Dorminey,
Fleming, Kranacher, and Riley 2010). Corporate fraud schemes are only
growing in complexity, yet the fraud triangle’s concept of rationalization and
other antecedents to fraud has remained largely static since Cressey’s original
theory. This section explores the key areas of criticism that need to be
addressed to enhance understanding of the fraudster’s rationalizations.
The prevailing concept of rationalization in financial crime is based on
Cressey’s research on embezzlement (Cressey 1953), which positions
How Fraud Offenders Rationalize Financial Crime 51

rationalization as a precursor to offending, but he empirically studied the
phenomenon using interviews with convicted offenders, after the offending
occurred. This difference in timing, which is subject to the criticism that
recollections may be skewed by postevent processes (Hollinger 1991;Fritsche
2005;Schuchter and Levi 2015), presents one of the most important chal-
lenges for researchers studying rationalization (Benson 1985;Fritsche 2002).
Considerable debate exists about whether rationalization is really a
universal precondition to fraud. Some claim that it is not relevant for repeat
offenders or those predisposed to fraud (Murphy and Dacin 2011). Dor-
miney, Fleming, Kranacher, and Riley (2012) and Lokanan (2015) maintain
that repeat offenders or “predators”only need the opportunity as they do
not view their behavior as being immoral. Others further contend that
rationalization is not a necessary antecedent at all. Through interviews with
a small sample of white-collar offenders, Schuchter and Levi (2015, p. 184)
note that none of their offenders directly rationalized their behavior, but
they did note feeling dissonance or a “fraud-inhibiting inner voice”in
offender accounts.
Emerging from the criticism and debate surrounding the fraud triangle are
several revised models that seek to extend fraud theory. Many of these
alternative models exclude rationalization from their framework. For
example, in Albrecht’s Fraud Scale (Albrecht, Howe, and Romney 1984),
rationalization is replaced with integrity. Similarly, Free, Macintosh, and
Stein’s (2007) organization-level fraud triangle (charismatic leadership,
management controls, and organizational culture), Ramamoorti, Morrison,
Koletar, and Pope’s (2013) ABCs of fraud (the bad apple, bad bushel, and
bad crop), and Kranacher, Riley, and Wells’(2011) M.I.C.E. framework
(Money, Ideology, Coercion, and Ego) also exclude rationalization. This
omission perhaps reflects challenges that remain in understanding and acting
to mitigate rationalization in financial crime.
SUMMARY AND CONCLUSIONS
This chapter has provided a systematic overview of rationalization. The
concept emerges as contested and fractured across a range of theoretical
approaches and literatures. Researchers have investigated many influences on
52 Iva Charlopova et al.

offender rationalization as well as derived a taxonomy of rationalizations,
primarily drawing on work in moral disengagement and social psychology.
This work has begun to open the cognitive black box underlying fraudulent
offending.
To date, research in the area of rationalization has been overwhelmingly
theoretical with little empirical work seeking to validate or further investi-
gate these categories. This situation prompted Murphy and Dacin (2011)
and Free (2015) to call for field-based research into the theoretical cate-
gories, a call that remains largely unanswered. Interviews with offenders
and the use of direct offender accounts hold great potential in helping to
refine the complex notion of rationalization. Without dealing with the
myriad of epistemological and methodological issues faced by relying on
offender accounts, research on fraud is ever challenged by the question of
the validity of data. All data sources about fraud 2surveys, data from the
state, victim accounts, and police statistics 2present problems of veracity
and interest (Presser 2009). What this review highlights is that ration-
alization research largely ignores the here-and-now of crime, especially
serious fraud, which is typically prosecuted over an extended period. Direct
offender accounts have the potential to open up the offender’s lived expe-
rience, including its affective dimensions. Although theoretical classifica-
tions have furnished intuitively appealing taxonomies, empirical research is
required to validate the major modes of rationalization as well as the
offending patterns associated with these modes.
How firms can seize upon rationalization to take away excuses from
would-be offenders is also an area ripe for further investigation. The notion of
anti-rationalization has potential to build more fraud resilient organizations.
Hirschi (1969, p. 208) contends that rationalization offers cues for effective
crime prevention initiatives that seek to dissuade people from contemplating
crime by neutralizing rationalizations before the event (Nettler 1974;Cressey
1986). The implication is that organizations’antirationalization programs
will operate on offenders that need to address internal moral dissonance
before offending. Although researchers have exerted great effort into identi-
fying major modes of rationalization, what can be done about it remains
underspecified. The notion of anti-rationalization is likely to be especially
important in organizational settings because hierarchical structures and
organizational silos can lead to more “moral disengagement”mechanisms
(Bandura 1986).
How Fraud Offenders Rationalize Financial Crime 53

DISCUSSION QUESTIONS
1. Identify the three major drivers of fraud according to the fraud triangle.
2. Explain how “normalization”operates in the context of fraud.
3. Name the major types of rationalization identified in accounting research.
4. Describe the major personality characteristics associated with fraud
offending.
5. Explain several ways to enhance the fraud triangle.
6. Discuss what organizations can do to try to negate common ration-
alizations of fraud.
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