When a corporate fraud scheme is uncovered, the reaction is almost always the same: “I can’t believe it was them. They’ve been with us for 15 years.”
The uncomfortable truth about internal fraud is that it is rarely committed by career criminals. It is usually carried out by trusted, capable employees. To understand how this happens—and how to stop it—we must look at the psychology of fraud, famously summarized by the “Fraud Triangle.”
The Fraud Triangle Explained
Criminologist Donald Cressey theorized that three elements must be present for occupational fraud to occur:
- Pressure: The employee is facing an unshareable financial problem (e.g., medical debt, addiction, or even extreme pressure to meet corporate targets).
- Rationalization: The employee justifies the theft to themselves. “I’m just borrowing it,” “The company owes me for a missed promotion,” or “They make millions, they won’t miss this.”
- Opportunity: The employee realizes they have the access and ability to commit the fraud without getting caught.
Controlling the Controllable
As an employer, you have very little control over an employee’s personal financial pressures, and you cannot police their internal rationalizations. The only leg of the triangle you can control is Opportunity.
This is where Segregation of Duties (SoD) becomes critical.
If an employee has the ability to both authorize a transaction and record it in the ERP (e.g., approving a vendor and paying that vendor), the opportunity is immense. In moments of extreme personal pressure, a trusted employee might see that open door and walk through it.
Rigid SoD protects your business, but it also protects your employees from temptation. By utilizing automated compliance solutions to enforce SoD within your ERP, you eliminate the “Opportunity” leg of the triangle, effectively short-circuiting the psychology of fraud.