Fraud Theories

• Prof. Dr. Klaus Henselmann
• Dr. Stefan Hofmann

Although it is common knowledge today that people may commit fraud, it is often not understood why they do it. Donald R. Cressey, one of the pioneers in fraud research, came to the conclusion that fraud is most likely to occur when three critical elements come together: incentive/pressure, opportunity, and attitude/rationalization. In the case of accounting fraud, for example, the incentive/pressure might be the need to make earnings look better in order to meet debt covenants. The opportunity might be a weak audit committee or weak internal controls, and the attitude/rationalization might be that “we’ll only cook the books until we get over this financial hump”. Cressey developed a three-pronged framework, commonly known as the fraud triangle, which is a very useful tool for fraud-fighters seeking to understand and manage fraud risks. The fraud triangle is shown in Exhibit 6 (see, e.g., Montgomery/Beasley/Menelaides/Palmrose 2002, p. 63; Wells 2007, p. 7).

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