The Fraud Triangle

It is generally believed that three elements are found in almost every case of employee fraud. These elements allow people to commit fraud, and only when all three are present does fraud occur. The three elements are:

1. Opportunity. For fraud to occur, the employee must believe he or she can both commit and conceal the crime. Unfortunately, seasoned expert Christopher Eiben believes that every opportunity to commit fraud will be exploited. The only question is when and how.
2. Incentive/Pressure. Bearing down on a person. Often, it's financial. Pressure to display wealth beyond one's means or related to one's current or past expenditures. May stem from drug, alcohol or gambling addiction. Sometimes, it's emotional pressure-such as an extremely callous or cruel boss who instills in the employee a desire to "exact revenge." Finally, job dissatisfaction or fear of losing a job also may create pressure that can lead to theft.
3. Attitude/Rationalization. Most often comes in the form of "I deserve it." In other words, the employee feels he or she is not getting what he or she deserves. Often it's an inflated sense of one's self-importance and contributions and a false sense of entitlement.

The second-most-popular form is totally different. It's the employee rationalizing his decision to take advantage of opportunity by saying "I'll just borrow it for a little while and then pay it back." Although the "borrowing" may grow to hundreds of thousands of dollars, the perpetrator continues to rationalize his or her theft by "intending to pay it all back."

Fraud prevention requires that owners and employees be alert to signs of any of these three elements, and that they move swiftly to root them out before they manifest themselves as fraud.