Thursday, July 3, 2008

The Fraud Triangle - Is it Now the Fraud Diamond?

I just read a very interesting article by Peter Goldmann on the Associate of Certified Fraud Examiner's website.
One of the first things a fraud examiner learns is the Fraud Triangle. Essentially, it says that in order for occupational fraud to occur, 3 factors are generally present:
  1. Pressure - the fraudster has a financial need or pressure, generally in the form of a perceived nonsharable financial need;
  2. Opportunity - there is a perceived opportunity in the organization to commit the fraud; and
  3. Rationalization - the fraudster is able to rationalize their actions.

Generally speaking, most employees are honest. But the new ACFE Report to the Nation reveals that nearly 88 percent of employee fraudster who get caught have no criminal record.

Goldmann makes the case that the triangle of causes may become a diamond - the fourth corner being the "widespread sense of alienation and disenfranchisement, driven largely by the 'layoff culture'...and further fueled by the accelerated disappearance of health care, pension and other benefits...foreign outsourcing of both hourly and salaried jobs...and increasing stressful workloads."

That is frightening.

Goldmann states that historically, employees who survive a mass layoff (defined as more than 50 employees in an individual private-sector employer) generally took it well. They felt bad for their former coworkers, but felt that management was doing what it needed to do to protect the business. However, in the last 10 years or so, researchers are now seeing a change of heart in the surviving employees. There is now a heightened fear that themselves are disposable. When that happens, they lose "all sense of camaraderie and 'belonging' to the community and instead start to focus on 'looking out for number one.' "

Fortunately, not all employees are going to have this reaction to the effects of a culture of layoffs. But to again quote Goldmann, "why risk alienating workers and encouraging them to steal from us if we don't have to?"

One possible solution is tone at the top. Tone at the top is a key context especially in Sarbanes-Oxley compliance, and setting a positive one, one that shares information clearly and consistently, can help combat this.

No comments: