Criminologist Donald Cressey's fraud triangle attributes the occurrence of fraud to three crucial elements: a nonshareable financial pressure, an opportunity, and rationalization (Other People's Money: A Study in the Social Psychology of Embezzlement, Patterson Smith reprint series, 1973).
In addition, scholars, regulators, and executives have focused on addressing the role of incentives and opportunities while ignoring the element of rationalization. Although it is the crucial link between the fraudster's mind and the fraud itself, this unique direction for fighting fraud has not been recognized.
Based on that research, four broad categories of fraud rationalization are suggested in the Exhibit:
Focusing on the bigger mission may be the most difficult rationalization to root out.
Of course, even the most effective control environment is no guarantee against use of the "bigger mission" rationalization; it does little to deter the loyalty or fear of employees who commit fraud in order to protect their colleagues or families.
First, consider that the incentive structures and external economic realities that feed this rationalization are common across employees.
A focus on responsibility is an easily accessible rationalization in accounting settings.
In addition, management should be mindful of the impact that outsourcing certain functions has on the ease with which this rationalization can be invoked.
This rationalization technique--and the next--is more intuitive and more familiar to CPAs.