TERRY BIRRELL
CERTIFIED PUBLIC ACCOUNTANT
N
The “Fraud Triangle”
The Report included a study of the personal characteristics of fraud perpetrators. This study revealed that often the conduct of a fraud requires the components of the fraud triangle:
MOTIVE - OPPORTUNITY - RATIONALIZATION
The National Bureau of Economic Research has now confirmed that the economic expansion which began in November 2001 ended in December 2007 and that the US economy has been in a recession since then. Per the NBER, a recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. (The full report can be obtained at www.nber.org.)
Because of the recession, one of the three components of fraud – motive - will be much more prevalent than it was in 2004. Both managers and employees will have a more difficult time meeting their company defined performance goals, especially profitability and sales goals. In addition, there may well be additional outside pressures. Examples of such outside pressures include the loss of employment by a family member and drug or alcohol abuse exacerbated by worries among others.
Furthermore, depending upon their values and reasoning, a second of the three components of fraud – rationalization – may be much more prevalent than it was in 2004. For example, employers often attempt to avoid laying-off some workers by cutting back on the hours and/or pay of all workers. One of these workers who has suffered a cut-back may feel that their performance did not warrant a cut-back whereas another worker’s performance did warrant termination. Even a worker who does not receive a pay cut but who merely does not receive what he or she has come to expect as a “normal, annual” pay raise may feel that his or her services are not properly valued and recompensed.
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Copyright 2008. Terry L. Birrell. All rights reserved.