Causes of Fraud

The first leg of the fraud triangle represents pressure — what motivates the crime in the first place. A perceived pressure is a situation where someone believes they have a need to commit fraud. We call it “perceived” since what one person may feel is a pressure may not be a pressure to someone else.

In most cases a fraudster feels some kind of perceived pressure. Sometimes it is a financial need or non-shareable financial problem. The individual has some financial problem that he is unable to solve through legitimate means, so he begins to consider committing an illegal act as a way to solve his problem. The financial problem can be personal (i.e., he’s too deep in personal debt) or professional (i.e., his job or business is in jeopardy). For instance, the staff person who is pressured by their superior to report financial results that are better than the company’s actual performance.

Pressures that lead to fraud can be divided into six categories.

1. Violations of ascribed obligations — For example, a person holding a trusted position should behave in a manner becoming of his status. The person should behave in a certain way and refrain from certain behavior.
2. Problems resulting from personal failure — These are typically caused by bad judgment and feeling personally responsible.
3. Business reversals — This is caused by outside forces, not by the subject’s own failings.
4. Physical isolation — There is no one to turn to or no support network.
5. Status gaining — Living beyond their means to keep up with the Jones.
6. Employer — Employee relations — There is resentment or perceived maltreatment.

These problems are usually personal to that person, and they are too ashamed by the problem that they are unwilling to share with others. This is particularly disturbing when it is later understood that if the violator had talked about it others would have been willing to help.