Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Fraud Triangle – a case study

with one comment

Amy Wilson’s story of her embezzlement and the journey she has taken since then provides insight to the fraud triangle.

That’s the concept which says for a fraud to flourish, three factors need to be present:

  • Opportunity – the ability to do something wrong. Usually this is accompanied by the ability to hide doing so or get away with it undetected.
  • Motivation – the need to do something wrong.
  • Rationalization – the ability to persuade oneself that this isn’t fraud.  This isn’t wrong. In fact, taking this money is perfectly okay.

In this situation, her opportunity to commit fraud is quite visible. 

She had complete access to everything in the accounting and finance system except signing the checks. To get around that she simply forged signatures. People who work in accounting know that banks no longer look at check signatures unless you complain.

She was able to hide forging signatures because she reconciled the bank accounts. No other person would ever see the cleared checks.  There were no internal controls that would detect her fraud after the fact.

Motivation is visible for the first incident because her son was in legal trouble and she needed some money to hire an attorney:

The first time I embezzled, I used the funds to hire a lawyer for my son. It worked.

What parent cannot feel sympathy for someone whose son just landed in jail and is facing some serious time?  I think this provides a very clear picture for managers and auditors how easily a motivation factor can overwhelm someone who would otherwise never even think about committing fraud.

When a small fraud is first successful, the fraudster knows the door is wide open to more fraud.

Subsequent fraud incidences had an apparently noble motivation. She wanted to help other people and make herself look good:

An overachiever and people pleaser, I thrived on their appreciation of “my generosity” and on my status as their savior.

The rationalization for the first fraud incident appears to be trying to compensate for what she perceived as being an absentee mom which presented itself as helping her son stay out of trouble. That is my inference however.

She had to work at the rationalization side though. Look at this comment:

I continued to rob my employer, manufacturing ways to justify the theft to myself. I worked harder, put in more hours. Somehow, this made me feel less guilty and less shameful about my behavior. I vowed to find a way to pay back the money I’d “borrowed.”

It took some mental gymnastics.

Also notice the ‘borrowing’ comment. That appears to be a common feature of fraud rationalization. Format of that concept looks something like ‘I’ll pay this loan back next month/quarter/year with my next paycheck/ tax refund/ bonus/ raise’.

Next post – taking ownership.

Update: here are my posts in this series:

Written by Jim Ulvog

March 26, 2013, 8:58 am at 8:58 am

Posted in Accounting, Fraud

Tagged with , ,

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  1. […] Fraud Triangle – a case study […]


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