In this post we will conclude our discussion of Cressey’s Fraud Triangle with the final element – rationalization. First lets review our case study involving Mr. Y, who was our main character who lost his family’s life savings and mortgage payment at the casinos of Atlantic City, NJ. Mr. Y felt he had nowhere to turn for help and decided to set up dummy companies and defraud his employer by submitting fake invoices for payment to his dummy companies. In time Mr. Y replaced his life savings and mortgage payment and decided to continue the fraud after being passed over for a promotion. Mr. Y thought he would repay the stolen funds after receiving the bonus pay from the promotion. In the end Mr. Y was caught and sentenced to prison. For the complete story of Mr. Y, see part I of Cressey’s fraud triangle.
As previously discussed the elements of Cressey’s Fraud Triangle are: perceived need/pressure, perceived opportunity and now we look at rationalization. In order for there to be fraud all three elements must be present. Lets dive into the element of rationalization. According to Dr. W. Steve Albrecht, “nearly every fraud involves the element of rationalization.(1)” Furthermore, most fraudsters are first-time offenders, who typically would not commit other crimes. The fraudster, in order to complete the fraud, must rationalize away their dishonest actions. Some of the most common rationalizations are:
- The company owes me.
- I am borrowing the money and I will pay it back. (The most common rationalization)
- I’m not hurting anyone.
- We’ll fix the books after this difficult time passes.
- If I can’t meet my obligations, people will know and I will be humiliated.
There are many more rationalizations than this, looking at our case study of Mr. Y, you can figure out his rationalizations. Mr. Y would face humiliation of losing his home and retirement. Mr. Y was also angered by being passed over on the promotion. In other words Mr. Y rationalized that the company owed him. Mr. Y also initially rationalized that he was only borrowing the money and would repay the money back.
As you can see, rationalization is the simplest of the fraud elements, pressure and opportunity exist ro they don’t; rationalization depends on the fraudster. Many fraudsters wish only to try to beat the system, to commit the perfect crime. In the end rationalization is the mechanism that allows for people to eliminate the inconsistency of what they do from what they know they should do. In many cases a caught fraud perpetrator still feels that they are an honest person.
Now you know all of the elements of the fraud triangle. Understanding Cressey’s fraud triangle is first step to understanding how and why people choose to commit fraud.
P.S. Here is the obituary for Dr. Donald Cressey.
(1). Albrecht, W. Steven. Fraud Examination, 3rd ed. (Mason, OH: Cengage Learning, 2009) Page 49.
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