FINANCIAL FRAUD:
FINANCIAL FRAUD:
The National Fraud Investigative Service (NFIS) and it’s seasoned team of investigator’s specialize in the investigation of Financial Fraud and Financial Crimes such as embezzlement, fraud, forgery bribery, conflict of interest, and money laundering.
We have the proven ability to investigate, identify, document, and pursue individuals and organized groups engaged in the conversion and concealment of your assets.
The Fraud Triangle:
Fraud is a complex crime and there is one concept you will need to understand before anything makes sense: The Fraud Triangle.
The Fraud Triangle is also known as Cressey’s Triangle or Cressey’s Fraud Triangle. Understanding this Fraud Triangle is necessary for the seasoned investigator or anyone interested in understanding the various types of fraud and investigating them.
Cressey’s Fraud Triangle originates from an individual named Donald Cressey. Donald Cressey was the “Nations Leading Expert on the Sociology of Crime”. He authored a several books with Edwin Sutherland and is honored by the Association of Certified Fraud Examiners. (CFE)
More information about Fraud and Fraud related issues can be found at their Website: The Association of Certified Fraud Examiners: http://www.acfe.com
What is the Fraud Triangle?
The Fraud Triangle attempts to explain what factors must be present for an individual to commit fraud and for the intentional act to occur. Fraud is an intentional, calculated act by an individual or organization for financial gain.
There are three elements that must be present in order for fraud to occur:
Donald Cressey's Fraud Triangle
- Pressure
- Opportunity
- Rational
Without these three variables being present, fraud is unlikely to occur.
Part #1 of the Fraud Triangle:
Pressure:
The Fraud Triangle indicates that in order for an individual to perpetrate a fraud, there has to be a Pressure. Fraud is an intentional, calculated act by an individual or organization for financial gain. Pressure is one of the contributing factors that motivate a person to commit fraud.
Pressure’s can come in many forms and can include almost anything.
- A family conflict or divorce
- Medical bills
- Expensive tastes and/or wanting a lavish lifestyle
- Addiction problems
Most of the time, pressure comes from a significant financial need or problem. Often this Pressure is not sharable in the eyes of the fraudster. The person believes, for whatever reason, that the problem should only be solved by them in secret.
It should also be noted that some frauds are committed simply out of greed alone.
Part #2 of the Fraud Triangle:
Opportunity:
In the Fraud Triangle Theory, Opportunity is very simply understood. In order for an individual to commit fraud, there has to be an Opportunity presented to the individual.
Opportunity is usually created by the organizations poor management oversight, weak internal controls, and/or through the use of one’s position and authority.
Failure of the organization to establish adequate procedures to detect fraudulent activity dramatically increases the opportunities for individuals to commit fraud and for the fraud to occur.
Of the three factors in the Fraud Triangle, Opportunity is the one factor that organizations can have the most control over. It is essential that organizations build the necessary processes, procedures and controls that are unable to put employees in a position to commit fraud. It is also imperative that the organization has the necessary controls that can effectively detect fraudulent activity if and when it occurs.
Part #3 of the Fraud Triangle:
Rationalization:
Rationalization is a crucial component in the Fraud Triangle.
Rationalization involves an individual reconciling their illegal actions with the commonly accepted notions of decency and trust.
Rationalization also depends on the perception of the individual and the circumstances they are facing. If an employee feels that they have been passed over for a promotion, feels undervalued, underappreciated or underpaid, they could Rationalize stealing money by feeling that it is owed to them.
Another common rationalization is an individual might unilaterally decide taking the funds from the prganization was a “loan” or maybe it was Rationalized as “borrowing.” Many times the employee further “Rationalizes” the misapproiapted funds will be “paid back” once they are through the difficult pressure in their life.
Unfortunately, the majority of time, the Fraud usually grows and grows until it is finally discovered by accident. Once confronted with the facts, the perpetrator is always unaware of the damaged caused and to the extent of how much money they actually misappropriated. Ususally, the funds are never paid back.
On the other hand, if the employee felt the organization was nice, generous, made the employee feel valued, fairly paid and treated, the employee would probably have a different “Rationalization” and maybe feel that it was wrong taking funds.
In this scenario, the employee would not likely misappropriate the funds from the organization.
Conclusion:
Understanding the Fraud Triangle is essential to evaluating and investigating Fraud. Once the investigator has gained the knowledge on concepts of the Fraud Triangle, only then will they be able to better understand financial frauds, how they occur, why they occur, and what needs to be done to prevent them BEFORE they occur.
Contact the National Fraud Investigative Service (NFIS) and it’s seasoned team of investigator’s for your investigative needs.