The concept of the Fraud Triangle was developed by American criminologist and sociologist Donald R. Cressey, renowned for his extensive research into the minds of white-collar criminals. Frequently referred to as Cressey's Triangle, the theory articulates three critical elements that must be simultaneously present for a typical individual to engage in fraud. According to the Fraud Triangle construct, one necessary condition is that the prospective criminal must be under personal financial pressure that he or she cannot or will not disclose to others. Opportunity to commit the contemplated crime is a second key element of the triangle. A third and final prerequisite for fraudulent employee financial conduct, according to Cressey, is that the criminal must have the ability to rationalize his or her dishonest actions.
The Fraud Triangle's pressure element is defined as the problematic personal financial circumstances that motivate an individual to commit a fraud crime. In a typical case, the potential criminal feels unable or unwilling to disclose his or her situation to others or to seek assistance. Substance abuse, gambling debts and unmanageable personal financial obligations are all examples of the sorts of pressures encompassed by Cressey's theory.
The opportunity element in Cressey's Fraud Triangle refers to the potential criminal's access to the literal and logistical means to commit the fraudulent act. This generally requires the offender to identify some way to exploit their insider status within a corporate or business environment and to act accordingly. White-collar criminals might take advantage of their heightened knowledge of internal operations or their access to important accounts or assets to facilitate their schemes. In many cases, such individuals are under the impression that their detailed personal knowledge of internal operations and corporate procedures greatly minimizes the danger of being caught.
Rationalization is the third and final part of the Fraud Triangle theory, and it refers to the failure of those who commit white-collar fraud crimes to assume guilt or culpability for their actions. Instead, such individuals tend to see themselves as victims of unfair circumstances that are beyond their control and that justify the decision to abuse their position of trust within the employer's organization. The type of rationalization involved in a given case might stem from the criminal's belief that he or she has not been properly compensated for work performed or perhaps from a misguided belief that he or she is somehow entitled to borrow or appropriate company funds to fulfill personal financial obligations.
According to Cressey's Fraud Triangle theory, for a typical person to engage in financial fraud crimes, all three of the above conditions must be present. Should any of the elements be absent, fraudulent activity is far less probable. Fraud and embezzlement prevention techniques typically focus on the opportunity element by enacting strict screening processes for employees who are likely to be granted access to sensitive information and assets. Background investigations of the finances, employment records and criminal histories of potential employees are seen by many employers as critical weapons in the war against internal, white-collar fraud.
