I recently enjoyed the 1968 version of The Producers. Wonderful stuff. Lots of laugh lines I’d forgotten about since I watched it last.
While watching, I realized there was a great illustration of a fraud triangle developed in about 5 minutes or so. For an edifying, educational exercise, let’s review the sequence to illustrate the concept of fraud triangles.
As you recall this is the story of Max Bialystock, the down-on-his-luck theatrical producer, and Leo Bloom, the mousey staff accountant sent out by Max’s CPA firm. Zero Mostel plays Max and Gene Wilder is Leo.
Leo realizes that a theatrical flop would allow telling all the funders that they lost their money. Producing a flop could result in making a fortune. At this point, it is an intellectual concept only.
Max suggests they intentionally create a disaster, severely oversubscribe investors, and go to Brazil with the money after the show closes, if the show even makes it through the first night.
So the opportunity is in place. Next the motivation.
Max takes Leo to the park, feeds him, takes him on the merry-go-round, buys him a balloon and deserts.
Here comes the motivation and then rationalization.
Max is standing behind Leo as they look down from the Empire State Building. I’ll quote just a few lines.
Max: There it is Bloom. The most exciting city in the world. Thrills. Adventure. Romance. Everything you ever dreamed of is down there. Big black limousines, gold cigarette cases, elegant ladies with long legs. All you need is money, Bloom. Money is honey.
See all that motivation? Money, riches, luxury.
Coming out of a theater Max gives more encouragement.
The motivation is set. Now all we need is the rationalization.
Max and Leo are in front of a fountain for the final part of the fraud triangle.
Leo: But if we get caught, we’ll go to prison.
Uh. Yeah. That’s the way it works. But Max won’t let go.
Max: You think you’re not in prison now? Living in a gray little room, going to a gray little job, leading a gray little life?
See that sly rationalization? The hook is in place, Leo takes & sets it himself.
Leo: That’s right. I’m a nothing. I spend my life counting other people’s money. People I’m smarter than. Better than. Where’s my share? Where’s Leo Bloom’s share? (standing up) I want … I want …. I want everything I’ve ever seen in the movies!
The rationalization is complete.
Max: Leo! Say you’ll join me!
Leo: I’ll do it! By God, I’ll do it!
The fountains shoot illuminated water 30 feet into the air as Leo joyfully runs around the fountain.
And it’s full steam ahead on the massive fraud.
So here we have:
- Opportunity. Oversubscribe a flop.
- Motivation. Money – greed. Gorgeous women – lust.
- Rationalization. Where’s my share? I deserve it.
Of course it’s Hollywood so the journey is quick, but in just a few minutes Leo goes from a mousey accountant to opportunity, motivation, and rationalization, and ending with a wilful commitment to the fraud.
So there you go. A cinematic illustration of the fraud triangle.
If you don’t have the movie in your library, or available on Amazon prime rental, or on Netflix, you can check out the scene at YouTube here. Or order it on-line. But check it out. An entertaining accounting education.
Who would have ever guessed we could learn audit theory from Mel Brooks? Hmm. Perhaps I ought to do some accounting research this weekend with my copy of Young Frankenstein and Blazing Saddles.