ACCT 654 Week 1 Discussion Board Forum 1 Thread Example

Discussion Board Forum 1 Thread: Why Trusted People Commit Fraud

ACCT 654 Fraud Examination, Discussion Board Forum 1 Thread

Thread by [Student Name]

The thread answers a composite prompt on why fraud happens; the studies, book and Bible passage cited are real.

The fraud triangle explains why most trusted employees commit fraud, but it leaves out one element that explains which of them actually do: the capability to carry it out. The triangle remains the best starting point for an examiner, and its gaps point to where prevention efforts should go.

Cressey (1953) built the model from interviews with imprisoned embezzlers, people who had taken positions of financial trust in good faith and later violated them. He found that each had a financial problem the person felt unable to share with anyone, recognized that the position of trust offered a way to solve it in secret, and found words that allowed the act to be seen as borrowing or as something deserved. Those three conditions became known as pressure, opportunity and rationalization. The embezzlers Cressey studied did not think of themselves as thieves while they were stealing. That insight still matters, because it explains how honest people cross the line.

Later researchers argued that the triangle describes the conditions for fraud without describing the person. Wolfe and Hermanson (2004) proposed a fourth element, capability, meaning the position, intelligence, confidence, coercive skill and ability to lie consistently that let someone turn an opportunity into a completed scheme. Many employees face pressure and have access to cash, yet few can override controls, recruit others or keep a story straight under questioning. Senior executives often have all of these traits, which may explain why the largest frauds tend to start near the top.

In their review, Dorminey et al. (2012) follow Cressey's idea as later scholars extended it into a family of models, including the fraud scale and the MICE model of money, ideology, coercion and ego, and they argue that the triangle fits the accidental fraudster better than the predator who seeks out a position in order to steal. Their review also notes that rationalization is the hardest element to observe, since it happens inside the person. Murphy (2012) brought rationalization into a controlled setting. In an experiment, participants who misreported their performance and could rationalize it reported less negative affect afterward, which suggests that rationalizing removes the guilt that might otherwise stop a person.

Scripture describes the same pattern. "The heart is deceitful above all things, and desperately sick; who can understand it?" (English Standard Version Bible, 2001/2016, Jeremiah 17:9). Rationalization is self-deception: the employee persuades the one person who most needs persuading. The biblical principle explains why organizations should not rely on employees to recognize their own wrongdoing and why accountability to others, not good intentions, is the safeguard.

For prevention, the expanded model gives managers two practical questions. First, which employees have both access and the capability to override controls, and are they subject to independent review? Second, does the culture make it easy to rationalize theft, for example through perceived unfair treatment or tolerance of small violations? An organization cannot remove every pressure its people face, but it can limit opportunity, watch capability and make rationalizations harder to believe. Rotating duties, requiring vacations for staff who handle cash and asking a second person to approve unusual transactions all work against capability as well as opportunity, because they force a would-be fraudster to deceive more than one colleague over a longer time. Those are modest costs for the protection they buy.

References

Cressey, D. R. (1953). Other people's money: A study in the social psychology of embezzlement. Free Press.

Dorminey, J., Fleming, A. S., Kranacher, M.-J., & Riley, R. A., Jr. (2012). The evolution of fraud theory. Issues in Accounting Education, 27(2), 555-579. https://doi.org/10.2308/iace-50131

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Murphy, P. R. (2012). Attitude, Machiavellianism and the rationalization of misreporting. Accounting, Organizations and Society, 37(4), 242-259. https://doi.org/10.1016/j.aos.2012.04.002

Wolfe, D. T., & Hermanson, D. R. (2004). The fraud diamond: Considering the four elements of fraud. The CPA Journal, 74(12), 38-42.