Rationalization – the final side of the fraud triangle

The final component needed to complete the fraud triangle is rationalization.  This is the ability to persuade yourself that something you otherwise know is wrong is really OK.  A lot of mental gymnastics are obviously needed to do so, but that is the point.  If a person goes through those gymnastics, than what was wrong before is now acceptable. How can that happen?

One easy way for this to happen is the “borrowing” approach.  I have a serious problem so I will just borrow this money until next payday.  Then I’ll pay it back.  Then on the next payday, the problem has not gone away, so the thought is: I’ll borrow a little bit more and pay it back for sure next month.  All internal restraint has been removed.

Another approach is the entitlement mentality.  I’ve worked so hard for this organization that I deserve a raise.  That’s all this is – just a raise.  Or, I am making a big sacrifice working at this salary because I could get another job at a much higher rate so I deserve a big raise.  Even after this small raise I am still a bargain

The atmosphere created by senior management can lend itself to rationalization:  I know what the top bosses get away with, so the company will never miss this little amount.

The scary part here is rationalization takes place in the mind and cannot be seen.  The entire shift in mind set could take place invisibly.  It is possible this shift could manifest itself in comments or a change in attitude but not likely.  The rationalization most likely will never be visible.

2 Responses to Rationalization – the final side of the fraud triangle

  1. John Lyons says:

    Much progress has been made on human judgment and decision making since the days of Donald R Cressey’s fraud triangle. Rationality, one of the pillars of Cressey’s triangle has roots in classical economics. The model assumes people make rational choices, that they are selfish and that they generally know what they want.

    Daniel Khaneman is a psychologist at Princeton University. His observation: people are generally irrational, not always selfish, and often don’t know what they want. With it’s origins dating to the 1970’s and research on heuristics bias with Amos Tversky, Khaneman received the Nobel Prize in Economics (2002) for his ideas coined prospect theory.

    Prospect theory is a corner stone behavioral economics, which places more emphasis on the role of innate human qualities and emotions in judgment and decision making. People may not be as rational as once thought.

    New science research in neuroscience, psychology, evolutional biology and theoretical physics, to mention a few, should cause fraud consultants and practitioners to rethink prevention and deterrence, beyond the influence of Cressey and rational choice theory.

  2. Jim Ulvog says:

    Thanks John for your comment.

    I’m reading Khaneman’s book Thinking, Fast and Slow. I hadn’t pondered the impact of his ideas on the fraud triangle concept. My immediate reaction is that would make the rationalization side even more frightening. If people can make quite emotional decisions (thinking fast) to step into rationalization, that would make fraud more likely.

    Much to think about. Thanks for your comment.

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