In my Corporate Compliance Insights column, I have run a series of articles discussing how Compliance and Ethics Professionals might incorporate the Fraud Triangle into their Annual Compliance Risk Assessment(s). Though I cannot re-print the articles here, below are summaries of each with a link to each respective piece in the series.
This is a fascinating subject for mixed compliance and fraud professionals like myself. Incorporating the factors of the Fraud Triangle into compliance related areas has been very effective for me in the compliance and Independent Corporate Monitor work that I do. Feedback has been very positive on this series and I hope that the articles may provide you with some practical ideas that will help you improve the effectiveness of your own Compliance & Ethics Programs.
The first in the series is an Overview of the Fraud Triangle, which introduces the theory and sets the stage for the articles to follow. It also defines and distinguishes “Occupational Fraud” from “Predatory Fraud.” Though the Fraud Triangle was developed by a criminologist and concerned criminal acts associated with fraud, I have found that the concepts also apply to less than fraud-related criminal actions, such as violating a compliance policy or acting unethically in the course of an occupation.
The next article in the series explores the “Opportunity” factor of the Fraud Triangle, which relates to one’s ability to commit fraud, violate a compliance policy or act unethically, and is affected by such things as, among others, internal controls, knowledge & training, authority, and experience.
Part 3 of the series examines the “Rationalization” factor of the Fraud Triangle, which relates to a person’s ability to internally justify/rationalize their unethical, wrongful or criminal actions. This is often affected not only by a person’s individual moral standards, but also by the ethical tone within an organization and the person’s perception(s) about the fairness and equality of rewards and punishments for actions and behavior.
The next in the series looks at the “Motivation” factor of the Fraud Triangle, which generally relates to an “unshareable need” that arises within a person’s life. This is the one factor of the Fraud Triangle that an organization has the least control over, as well as the most difficult one to be assessed. This “unshareable need” is a personal need that can arise from a broad range of things, ranging from common and ordinary life issues (i.e. a divorce) to those that are more nefarious (i.e. drug addiction). As this need increases within a person’s life, so to does the risk of that person taking actions contrary to an organization’s Code of Ethics and/or Compliance Policies. To help illustrate this, I included in this article some very interesting and real-life examples that I have encountered over the course of my 20 plus years of fraud investigations experience, including many from my service as an FBI Agent.
The final in the series examines the “Perception Factor”. This is technically not a part of the Fraud Triangle and concerns the perception by an individual regarding whether or not they will get caught if they violate a compliance policy, act unethically or commit a fraud. I have found that this can be an overriding factor in a person’s decision whether or not to violate a compliance policy, act unethically or commit a fraud, even when the three factors of the Fraud Triangle are at a high risk.
The Fraud Guy 