The ManicaPost
Sam Shumba
Just as a physician needs to be well versed in pathology in order to successfully treat his patients, an organisation’s loss controller needs to be well versed with theories and models of crime causation in order to effectively combat fraud.
A number of scholars propounded models to explain criminal conduct. Today our understanding of criminal behaviour, particularly occupational crime, owes a lot to the sterling works of early scholars such as Edwin H. Sutherland; Donald R. Cressey; Dr. Steve Albrecht; Richard C. Hollinger. Perhaps the most popular of all these in aiding our understanding of fraudulent behaviour is Donald Cressey.
Donald R. Cressey found in a 1953 study of embezzlers that most of those he examined had lived beyond their means for some time before deciding to embezzle. Cressey notes that: “The most interesting fact about the white-collar offenders’ aggregate financial status is not the value of their assets but the extent of their liabilities.”
He goes on to state that offenders often “have the material goods associated with successful people but may barely be holding their financial selves together.” These people have assembled a structure of respectability, but it is often built on the sands of debt.
What about trusted persons?
Trusted persons become trust violators when they conceive of themselves as having a financial problem which is non-shareable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalisations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.
Over the years, the hypothesis has become better known as the “fraud triangle.” One leg of the triangle represents a perceived non-shareable financial need. The second leg represents perceived opportunity, and the final stands for rationalisation.
The fraud triangle
The role of the non-shareable problem is important.
Cressey said: “When the trust violators were asked to explain why they refrained from violation of other positions of trust they might have held at previous times, or why they had not violated the subject position at an earlier time, those who had an opinion expressed the equivalent of one or more of the following quotations: ‘There was no need for it like there was this time,’ or ‘The idea never entered my head,’ or ‘I thought it was dishonest then, but this time it did not seem dishonest.’
In all cases of trust violation encountered, the violator considered that a financial problem which confronted him could not be shared with persons who, from a more objective point of view, probably could have aided in the solution of the problem.
Non-shareable financial problems
That which is considered “non-shareable” is wholly in the eyes of the potential occupational offender, Cressey said. “Thus a man could lose considerable money at the race track daily but the loss, even if it construed a problem for the individual, might not constitute a non-shareable problem for him.
Another person might define the problem as one which must be kept secret and private, that is, as one which is non-shareable. Similarly, a failing bank or business might be considered by one person as presenting problems which must be shared with business associates and members of the community, while another person might conceive these problems as non-shareable.
In addition to being non-shareable, the problem that drives the fraudster is described as “financial” because these are problems that can generally be solved by the theft of cash or other assets. A person with large gambling debts, for instance, would need cash to pay those debts.
Cressey did note, however, that there are some non-financial problems which could be solved by misappropriating funds through a violation of trust.
For example, a person who embezzles in order to get revenge on his or her employer for perceived “unfair” treatment uses financial means to solve what is essentially a non-financial problem.
Perceived opportunity
According to the fraud triangle model, the presence of a non-shareable financial problem, by itself, will not lead an employee to commit fraud. The key to understanding Cressey’s theory is to remember that all three elements must be present for a trust violation to occur. The non-shareable financial problem creates the motive for the crime to be committed, but the employee must also perceive that she has an opportunity to commit the crime without being caught.
Rationalisations
The third and final factor in the fraud triangle is the rationalisation. Cressey pointed out that the rationalisation is not an ex-post facto means of justifying a theft that has already occurred. Significantly, the rationalisation is a necessary component of the crime before it takes place.
In fact, it is a part of the motivation for the crime. Because the embezzler does not view himself as a criminal, he must justify his misdeeds before he ever commits them. The rationalisation is necessary so that the perpetrator can make his illegal behaviour intelligible to himself and maintain his concept of himself as a trusted person.
Sam Shumba is a Certified Fraud Examiner (CFE), an Expert Consultant in Fraud Prevention, Detection, Investigation and Litigation and writes in his personal capacity. He can be contacted on [email protected]
