As devout Radical Compliance readers might already know, from time to time I have written about something I call the Anti-Fraud Triangle—a method of assessing misconduct risk in your organization, based on the Fraud Triangle that auditors have used for decades to understand fraud risk.
Well, I just published a longer white paper on the Anti-Fraud Triangle with Workiva, and hosted a companion webcast not long ago on the same subject. If you like geeking out over risk assessment techniques, swing by Workiva’s website and take a look.
I won’t steal my own thunder by divulging all the paper’s details here. Suffice to say, the traditional Fraud Triangle is a wonderful device to understand the primary motivators of fraud: pressure, rationalization, and opportunity. When those three elements are present, a person’s fraud risk is high.
My only beef with the above diagram is that the Fraud Triangle’s sides are all equal length. That’s not how the real world works. The individual circumstances that drive a person to commit fraud come in an infinite number of sizes, and an infinite number of triangles. If you took a measure of each person’s fraud motives, the resulting triangles would be in all shapes and sizes.
That’s Step 1 of using the Fraud Triangle as a risk assessment tool: use the concepts (which are stellar), but try to take an accurate measure of each side for whatever person, department, or organization you’re assessing.
Step 2 is then to apply the Anti-Fraud Triangle— the three countervailing forces that stand against pressure, rationalization, and opportunity.
The larger the threat of pressure, the more you need to invest in culture; the more opportunity that exists, the more you need to develop controls to tamp it back down.
To my reckoning, the single most important leg of the triangle is pressure/culture. Compliance officers spend so much time wondering when a high performance culture (which is good) crosses the line into a high pressure culture (which is bad). It happens when the company lets its core ethical values wither. Once that happens, the pressure picks up— and then your fraud triangle starts to look bad. That’s when you invest in culture, before everything goes sideways.
So if you’ve read this far, visit the Workiva website to download the full paper and hear an archived version of the webinar. Then let me know what you think.