I’m not a big fan of the fraud triangle. It’s like ITT Tech. Both make people think they’re smart, but they’re not.
You know this stuff. Pressure, opportunity, and rationalization must be present at the same time in order for an ordinary person to commit fraud. Like how bacon, lettuce, and tomato must be present at the same time in order to have a BLT. And just to make it perfectly clear to any ITT grads out there, opportunity is the bacon of the fraud triangle. There’s absolutely no way you could have fraud if there’s no opportunity to commit fraud, just like there’s absolutely no way a BLT could qualify as a real sandwich if you say, “Hold the bacon.” Sorry vegans.
Somebody at some point said, “Hey, this fraud triangle is way too simplistic” and came up with the fraud diamond, named after the CEO of JPMorgan Chase, Jamie Di(a)mon(d); however, I would have preferred if they named it the Fraud Rhombus or the Fraudrilateral. The fraud diamond simply adds “capability” to the previous fraud polygon. But adding capability adds nothing to the model because you don’t have an opportunity if you don’t have the capability to act on the opportunity. A stack of $100s sitting on a table is not an opportunity to a dude with no arms. Maybe we should make it the fraud pentagon and add “consciousness” because nobody commits fraud while in a coma.
A closer look at the three components of the fraud triangle shows that while the fraud triangle is interesting, it’s not actionable.
Pressure. While describing pressure in the fraud triangle, the ACFE says, “[If] the individual has some financial problem that he is unable to solve through legitimate means, he [may] begin to consider committing an illegal act … as a way to solve his problem.” Then the ACFE gives some specific examples of such problems: the inability to pay bills, drug addiction, a gambling problem, pressure to meet earnings targets, pressure to meet productivity goals. Then they slip this one in: “Desire for status symbols such as a bigger house, a nicer car, etc.” Wait a second. I drive a 2007 Honda Civic and we need new carpet. Now I know how Andy Fastow felt.
Opportunity. It’s impossible to completely remove all of the opportunities to commit fraud. At least that’s what our disclaimers say. Management override of controls and collusion are two threats that will always exist. Wanting to eliminate all opportunity to commit fraud is like wanting to marry a movie star. It’s only possible in your head. But then you think it through. Seriously, if Jennifer Aniston couldn’t make it work with Brad Pitt, then what chance do you have of assessing all possible fraud risk, let alone developing and monitoring control activities to completely mitigate that risk? I mean, Brad Pitt’s so good looking.
Rationalization. As humans, we need to convince ourselves that we are not bad people. Rationalization is how fraudsters do this when they’re unable to forge a prescription for Prozac. Common rationalizations include:
- I’ll pay the money back
- We’ll fix the books once we’re through this tough time
- I wasn’t breastfed as a child
The human brain has an incredible ability to rationalize. Let’s try it right now. Let’s say I want to steal a Twix bar from 7-Eleven. Who doesn’t? If I steal it, there will be one less Twix in the 7-Eleven. Then when some guy comes in with an extremely serious heart condition and a hankerin’ for chocolate, cookie and caramel that can only be satisfied by the creamy, crunchy goodness of a Twix bar, he won’t be able to buy one or eat one. One less Twix bar in his diet will probably prevent a major heart attack which probably would have killed him despite all the expensive medical attention that probably would have been administered. So by stealing that Twix, I’m not only saving some guy’s life, I’m fixing health care. You’re welcome, America.
Knowing the fraud triangle does nothing to help us prevent or detect fraud because everyone has pressure, opportunity, and the ability to rationalize fraud, just like everyone has the pressure, opportunity, and ability to digest bacon. And remember, if two sides and the included angle of one fraud are equal to two sides and the included angle of another fraud, then you’re a dork.
Greg was born in Akron, Ohio, in the shadow of the Firestone tire factory. He began to swim competitively when he was eight, swimming for the Mountlake Terrace Lemmings. He graduated in 1995 from the University of Washington with a math degree. He chose math for the ladies. After serving ten-years as an 8th grade math teacher, he decided it was time for a career change, mainly because he “couldn’t stand those little bastards.” He began his accounting career with a local CPA firm in Orem, Utah, where he consistently failed the QuickBooks ProAdvisor advanced certification exam. Greg currently works as the Controller for the Utah Valley Physicians Plaza. He lives in Provo, Utah, with his wife and two kids. He enjoys eating maple bars, drinking Diet Pepsi, and swearing.