The Fraud Triangle: Do “some men just want to watch the world burn?”


Chris Ekimoff, CFE, CPA
Director, Forensic & Litigation Consulting
FTI Consulting

There are a few tenets to financial fraud that any auditor, analyst or attorney can quote chapter and verse; the most notable may be the Fraud Triangle.

Theorized by Donald Cressey in his 1973 work, Other People's Money: A Study in the Social Psychology of Embezzlement, the Fraud Triangle identifies three general elements found in the cases of embezzlement that Cressey studied: financial pressure (motivation), opportunity and rationalization.

Trusted persons become trust violators when they:

  • Conceive of themselves as having a financial problem which is non-shareable.
  • Are aware that 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 verbalizations 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.

In a recent Fraud Magazine article, “Defrauding for fun not need,” Robert Kardell, J.D., CFE, CPA/CFF, Special Agent at the FBI, discusses his take on the methodology and limitations of Cressey's seminal work. In his experience, Kardell has seen multiple cases of serial fraudsters without the cliché financial pressures of unexpected medical bills, mounting gambling debts or crippling drug addictions that take their employers for a ride anyway. These cases appear to be missing one element of the Fraud Triangle: financial pressure (motivation).

Kardell wishes to warn companies and potential victims that the well-off middle manager with a country club membership and no outstanding debts still may be making off with more than his or her share. He references a case of a fraudster at a Midwestern organization with a cushy six-figure salary, company car, and enough cash to travel the world and attend major sporting events. The investigation found the fraudster was submitting personal expenses for reimbursement, reclassifying expense accounts based on his embezzlement and seeking reimbursement for mileage on his personal car (yes, even with a company car!).

Kardell believes that some fraudsters are inherently criminal, and will pursue theft and embezzlement regardless of their personal financial standing. Batman's butler Alfred may have said it best.

It’s here I believe Kardell may want to consider an alternative to adding a side to the Fraud Triangle: the inherent need to steal might not be a financial motivation to embezzle, but it is a motivation for that individual nonetheless. Without delving too deeply into criminology theory, certain individuals may seek out the "high" of stealing from their employer; whether to get the thrill of violating the rules, the feeling of power in being able to manipulate their position, or because they find themselves unchallenged and bored in their day-to-day duties.

Kardell posits that organizations currently relying on a Fraud Triangle-based model of fraud risk management should strengthen their procedures around background investigations conducted during the hiring process. Does the individual show tendencies towards occupational fraud? How do their past employers and references describe their general behavior? What additional information can be gathered regarding the individual's expense reports or other financial duties at a previous company?

In the time since the publication of Other People's Money, financial fraud and the people who commit it have increased in complexity, length and severity. So, too, has our understanding of the reasons for those events, even when they may not appear to fit the common mold. Motivation has always been a subjective element to the Fraud Triangle — a latent need to steal is still a motivator for fraud, but should carry additional consideration going forward.

Chris Ekimoff, CFE, CPA, is a director at FTI Consulting in the Forensic & Litigation practice in Washington, D.C. He can be reached through email or on Twitter (@EkimoffCPA).

Disclosure: The views expressed in this piece are those of the author and aren't necessarily the views of FTI Consulting, its management or its subsidiaries.