Chapter 2: Theories of Fraudulent Behavior#

Why would a trusted employee steal from the company they’ve worked at for years? It’s tempting to label them as simply dishonest, but the real story is far more complex. Decades of research have shown a mix of psychological pressures, social influences, and workplace conditions that push ordinary people toward fraud. This chapter explores the most influential theories that explain how and why occupational fraud happens.

The Big Picture#

At its heart, fraud examination isn’t just about numbers—it’s about people. To catch and prevent fraud, we need to understand the human side: what drives someone to break the rules? This chapter answers that question by introducing the key models that criminologists and fraud experts use to make sense of fraudulent behavior. From the famous fraud triangle to the role of workplace culture, you’ll gain a framework that helps you see fraud not as random evil, but as a predictable outcome of specific risk factors.

The Fraud Triangle: Pressure, Opportunity, and Rationalization#

In the mid‑20th century, criminologist Donald Cressey interviewed hundreds of people in prison for embezzlement—stealing from their employers. He wanted to find out what they all shared. His answer became one of the most enduring ideas in fraud examination: the fraud triangle.

Fraud Triangle: A model that says three conditions must typically be present for occupational fraud to occur—a nonsharable financial pressure, a perceived opportunity to commit the fraud, and a way to rationalize the act as acceptable.

Think of it like a three‑legged stool. If you remove any one leg, the stool collapses. Similarly, if you can eliminate one of the three elements, fraud becomes far less likely. Let’s look at each leg in detail.

Nonsharable Financial Pressure#

Cressey found that the embezzlers weren’t just greedy. They were under intense financial strain—but it was the kind of strain they felt they could not share with anyone who might help. That’s why he called it a nonsharable problem. The person believes that if the problem came to light, they would lose status, respect, or relationships. So they turn to a secret, illegal solution.

Cressey identified six common subtypes of nonsharable problems:

1. Personal debt – Overwhelming credit card bills or loans that the person is too embarrassed to admit.
2. Living beyond one’s means – Keeping up an image of success (a big house, fancy car) that the real paycheck cannot support.
3. Business or investment reversals – A side business failing, or a bad investment that wiped out savings.
4. Vices and addictions – Gambling losses, substance abuse, or other costly habits kept hidden from family and coworkers.
5. Family or peer pressure – Expectation to provide a certain lifestyle or meet demands from relatives.
6. Status‑gain or revenge – A desire to “get even” with an employer who the person feels has mistreated them, or a need to prove they are successful at any cost.

Notice that in every case, the pressure is perceived as unsolvable through honest means and too shameful to reveal. That combination is what makes it a fraud risk.

Perceived Opportunity#

Even under crushing pressure, a person won’t commit fraud unless they see a way to do it without getting caught. This is perceived opportunity—the belief that there is a weakness in the system they can exploit. It doesn’t matter whether the opportunity is real or imagined; what matters is what the potential fraudster thinks.

Opportunity often arises from weak internal controls: a lack of oversight, poor segregation of duties, or an over‑trusting manager. For example, if the same employee opens the mail, records payments, and makes bank deposits, they have a clear opportunity to steal cash and cover it up. The fraudster thinks, “Nobody checks my work, so I can get away with it.”

Perceived Opportunity: The fraudster’s belief that a control weakness exists and that they can exploit it without being caught.

Rationalization: The Mental Loophole#

Most people don’t see themselves as criminals. So before they commit fraud, they need to mentally reframe the act so that it feels justified—or at least not truly wrong. This internal justification is called rationalization.

Common rationalizations include:

• “I’m just borrowing the money; I’ll pay it back.”
• “The company owes me—I’ve worked overtime for years without recognition.”
• “Everyone does it; it’s just how business works here.”
• “They’re insured; no one really gets hurt.”
• “I need this more than they do.”

Rationalization allows the person to preserve their self‑image as a good person while doing something dishonest. It’s the leg of the fraud triangle that is hardest to observe from the outside, because it happens entirely inside the offender’s mind.

Three Types of Offenders#

Cressey also noticed that embezzlers didn’t all fit one mold. He grouped them into three offender types, each with a different relationship to the fraud triangle:

• Independent businessmen – These are people who own or run a business and use fraud to save it from failure. Their nonsharable problem is often a business reversal, and they rationalize that they are protecting employees or their life’s work.
• Long‑term violators – These individuals start stealing small amounts and continue for years. They often begin with a real financial shock, but then keep taking money even after the original problem is solved. Their rationalization evolves over time, and they may see the fraud as a normal part of their income.
• Absconders – These are the “take the money and run” offenders. They typically steal a large sum in a short time and then disappear. Their pressure is often acute and immediate, and they see no other way out.

Understanding these types helps investigators anticipate behavior patterns and spot warning signs.

📝 Section Recap: The fraud triangle shows that occupational fraud usually arises when a person has an unshareable financial problem, sees an opportunity to solve it secretly, and can justify the act to themselves. The three offender types illustrate different ways these elements can combine.

Sutherland’s Differential Association Theory#

Cressey’s work focused on the individual, but fraud doesn’t happen in isolation. Sociologist Edwin Sutherland proposed that criminal behavior—including white‑collar crime—is learned through interaction with others. His differential association theory says that a person becomes delinquent because they are exposed to more attitudes favorable to law‑breaking than attitudes unfavorable to it.

Differential Association: A theory stating that criminal behavior is learned in close social groups, where individuals pick up both the techniques of the crime and the attitudes that justify it.

Think of it like learning a language. If you grow up hearing a particular dialect, you naturally speak that way. In a workplace where bending the rules is common and even admired, new employees may absorb the same mindset. They learn not only how to commit fraud (the technical tricks) but also why it’s okay—the rationalizations. For instance, a new salesperson might hear colleagues say, “Everyone pads their expense reports a little—it’s expected.” Over time, that becomes their norm.

This theory helps explain why fraud can become a habit in some departments or companies. If the culture rewards cutting corners and nobody speaks up, the dishonest attitudes outweigh the honest ones. Prevention, then, isn’t just about rules; it’s about shaping the social messages employees receive every day.

📝 Section Recap: According to differential association, people learn fraudulent behavior from those around them, making workplace culture a powerful influence that can either encourage or discourage dishonesty.

Albrecht’s Fraud Scale: Integrity Matters#

While the fraud triangle gives us three necessary conditions, it doesn’t explain why two people facing the same pressure and opportunity might act differently. That’s where the fraud scale, developed by Steve Albrecht, adds an important personal factor: integrity.

The fraud scale says that occupational fraud is most likely when:

• Pressure is high,
• Opportunity is present, and
• Personal integrity is low.

You can think of it like a balance scale. On one side sit pressure and opportunity—the forces pushing toward fraud. On the other side sits personal integrity—the force that resists. If pressure and opportunity are heavy enough, even a person with moderate integrity might tip into fraud. But a person with very high integrity can withstand enormous pressure and tempting opportunities without crossing the line.

Personal Integrity: An individual’s internal moral code—their habit of making honest, fair choices, even when no one is watching.

Albrecht’s insight is that integrity acts as a filter. When you hire people with strong moral character and nurture an ethical environment, you strengthen the side of the scale that prevents fraud. That’s why many organizations now include integrity testing or values‑based interviews in their hiring process.

The fraud scale doesn’t replace the fraud triangle; it refines it. Rationalization is still there, but integrity helps explain why some people find it harder to rationalize than others. A person with high integrity feels genuine guilt at the thought of stealing, so they never even consider the excuses that a low‑integrity person accepts easily.

📝 Section Recap: The fraud scale emphasizes that personal integrity can override pressure and opportunity, meaning that hiring and promoting ethical people is a powerful fraud deterrent.

The Hollinger–Clark Study: Job Dissatisfaction and Theft#

In the 1980s, researchers Richard Hollinger and John Clark conducted a large‑scale study of employee theft in retail stores and hospitals. They expected to find that theft was mostly about money. Instead, they discovered that the strongest predictor of theft was something else entirely: job dissatisfaction.

Employees who felt underpaid, disrespected, or treated unfairly were far more likely to steal from their employer. The theft wasn’t always about financial need; it was often a way to “even the score.” A worker might think, “They don’t appreciate me, so taking a few supplies is only fair.” This is a classic rationalization, but the root cause is the emotional state created by the workplace.

Hollinger and Clark also found that younger employees (especially those under 25) were more likely to steal. Why? Younger workers often feel less loyalty to the organization, have fewer stakes in their job, and may see the job as temporary. They are also more influenced by peer attitudes. If their coworkers treat theft as normal, young employees are likely to follow suit.

The study showed an important point: formal controls like security cameras and written policies are not enough. The social and emotional climate of the workplace matters just as much—sometimes more. When employees feel valued and part of a fair community, the desire to steal drops dramatically.

📝 Section Recap: Hollinger and Clark found that employee theft is strongly linked to job dissatisfaction and that younger workers are more prone to theft, highlighting that a positive, fair workplace culture can reduce fraud.

Age, Informal Controls, and Other Insights#

Let’s pull together a few more ideas to strengthen our understanding of why people commit fraud.

Age and Theft Likelihood#

The correlation between age and theft appears consistently in research. Younger employees tend to steal more often. This isn’t because young people are inherently dishonest, but because they often have less to lose. They may not yet have built a career, a reputation, or a family that depends on their income. As people age and accumulate responsibilities, the perceived cost of getting caught rises, and theft becomes less attractive. This doesn’t mean older employees never commit fraud—when they do, it’s often on a much larger scale, because they have greater access and trust. But the frequency of small‑scale theft is higher among the young.

Informal Social Controls vs. Formal Sanctions#

One of the most practical findings from decades of study is that informal social controls are often more effective at preventing fraud than formal punishments. What are informal controls? They are the subtle, everyday pressures that come from being part of a group:

• The fear of disappointing a respected coworker.
• The desire to be seen as trustworthy by your team.
• The embarrassment of being caught by people you see every day.
• The shared belief that “we don’t do that sort of thing here.”

In contrast, formal sanctions—written policies, threat of firing, legal prosecution—are distant and impersonal. An employee might think, “I won’t get caught,” or “The policy is just standard wording that nobody follows.” But if they know their actions would let down a colleague they admire, that can be a far stronger brake.

This is why building a cohesive, ethical team culture is one of the best fraud deterrents. When people feel connected to their coworkers and proud of their workplace, they are less likely to violate that trust. It’s not about being soft on crime; it’s about creating an environment where honesty is the social norm.

📝 Section Recap: Younger workers are statistically more prone to theft, and informal social controls—like team cohesion and peer respect—often prevent fraud better than formal punishment.

Summary#

In this chapter, we looked at the main theories that explain why people commit fraud at work. The fraud triangle tells us that a secret money problem, a chance to steal without getting caught, and a way to excuse it usually come together. We also learned that fraud can be learned from coworkers, influenced by personal integrity, and made worse when people feel unhappy in their job. Together, these ideas give us real tools to spot risks and create a workplace where honesty is the norm.