Scenario 1: A branch manager was transferred to a remote area for 6 months. However, management did not transfer branch manager even after 6 months despite several requests from Branch Manager. Branch Manage slowly become frustrated, started to commit a series of the fraud. He started taking kickbacks from customers while granting a loan, used the branch money for personal, embezzled the petty cash money. Finally, he was caught via whistleblower.

Scenario 2: A Teller in a bank was in habit of gambling. He wanted money desperately so he took some money from vault when nobody was looking. Nobody knew, how the money disappeared. Later, Investigation team was able to seek a confession from Teller based on circumstantial evidence.

Scenario 3: A High official in a bank was living beyond his means. He recently bought a very lavish house, luxurious car. He was able to arrange money by duping one of his customers. He used the power of his position to authorize the client a substantial amount that was later used by him. Later, Loan became non-performing loan as the client was not able to make payment of dues. Also, client whistleblow against the official leading to an investigation by the bank and eventually dismissal of the official.

Scenario 4: Branch Manager was living a high standard lifestyle beyond his income. He used to give loans to the client before loans were actually granted to the customer.In some case, he also committed appraisal fraud that is providing a loan based on highly inflated collateral value. During the surprise cash visit, audit team found the cash shortage. The BM was terminated later on.

Scenario 5: Teller was a drug addict. One day, a customer came to him with substantial money to deposit in his account. The Teller knew that customer was not frequent account operator. He provided the receipt of the deposit but, deposited that amount in his wife account instead of a customer. After, 2 or 3 months customer came to claim the shortfall amount in his account. Luckily, he had still receipt of the deposit slip. Teller claimed that receipt was manufactured but in vain. Finally, money was recovered and the teller was terminated.

What are the things common in these scenarios?

According to Donald R. Cressey(1919-1987) in his research, ”Other People’s Money: A study in the Social Psychology of Embezzlement(1953)” introduced the concept of the fraud triangle as illustrated by the following figure with the discussion of its necessary components.

fraud triangle

According to Cressey, there are 3 legs of this fraud triangle.  Perceived non-sharable financial need means that person usually has a need that can be solved by financially from the theft of the asset or money. He wants to keep these need secret for e.g., drug habit or revenge. All these needs are related to maintain current status or to gain higher status. It becomes the motive for employees to commit fraud.

Opportunity to carry out fraud comes from the two things. One is the information that can come from different mediums that can inform an employee that fraud can be committed by abusing his position. This can be as simple as watching TV serial. Technical skill refers to the abilities that are needed by employees to carry the job. For e.g., in scenario 5, teller knew how to make entries in the system for diverting fund from client account to his wife account.

Rationalization is how the fraudster justifies his criminal action. According to Cressey, rationalization begins before the fraudster commits the act. This is because no one wants to view himself/herself as a bad person. Rationalization is essential to justify his/her illegal behavior. After the criminal act is done, criminal usually abandon rationalization, that is, it becomes easier for criminals to repeat the act.

According to Cressey, there should be the presence of all three components to be interacting each for employee commit fraud. In the above 5 scenarios, we can see the presence of these components. In all scenario, there is a presence of non-shareable financial need that is some of them had had to maintain their current status which was not supported by their actual income so they need to embezzle funds, some had an addiction of drug or gambling, one was frustrated with his job.

All the perpetrators have the opportunity as they were in a position to misuse their authority. BMs have full authority over a branch, usually, staff are inferior in position and often lack knowledge of business practice and procedures. Therefore, they are more vulnerable to under influence through use of his/her position. Tellers knew all the system functionalities, they can easily commit fraud and hide their fraud transaction in the heap of the many legitimate transactions.

Although there is not clearly mention about anything about rationalization, there must be some kind self-bargaining thought that must have crossed their mind like “I deserve this”; “organization had benefitted from me a lot, why shouldn’t I” or  “Organization will get hurt, it’s  not that individual employees are losing money.”

Mitigate the Risk:

1.Perceived non-sharable financial need:

This risk can be solved by implementing the following measures

  • Having an open-door policy where employees can share their grievances without fear of being reprimanded or embarrassment. There should be appropriately skilled personnel who can provide adequate counseling to the staff.
  • There should be clear hotlines for reporting any suspicious activities such as sudden changes in the lifestyle of the employee , which shall be kept strictly confidential.

  1. Opportunity

This can be solved by through having appropriate Risk assessment mechanism in the organization. Then appropriate controls can be designed and implemented. For e.g., for teller depositing or making a payment above a certain threshold amount, approval form his/her superior should be obtained.

  1. Rationalization:

Although it depends upon the one individual to another, it can be linked to perceived non-sharable financial need. If the organization invest in morale-building exercise for an employee like providing necessary training, giving timely promotion as recognition for their contribution, providing objective compensation package, this will increase loyalty among employees as they believe that since the organization is fair to them, they should be fair to them.

Hence, Cressey Fraud Triangle provides the explanation for the nature of different frauds but not all frauds. Although being a half-century old, this theory has provided essential guidance for the fraud investigation for different fraud examiners.

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