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<\/p>\n\u201cI knew it was a fake check,\u201d she said. \u201cBut if I didn\u2019t come up with the money, we were going to lose our car.\u201d In more than two decades in law enforcement, this one case still stands out in my mind.<\/p>\n
Angelique was a wife, mother, and by all accounts, a good person with no criminal background. When her family was about to lose their only car, she was under pressure to find a way to keep it. Then an opportunity presented itself. She received a fake check in the mail, part of a common scheme among scam artists. It included instructions to cash it, wire a portion of the money back to the originator, and keep the rest. She knew it was fraud, but rationalized it by telling herself that her family needed a car and by the time the check went through, she would be able to come up with the money to cover it.<\/p>\n
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There is no shortage of executive or corporate malfeasance today. In fact, it seems endless despite law enforcement and regulators enforcing anti-corruption legislation with vigor and increasing focus on individual misconduct. In one of the latest scandals to rock the corporate world, the SEC accused Theranos CEO Elizabeth Holmes of defrauding investors of more than $700 million through false claims about its technology.<\/p>\n
It\u2019s doubtful that Holmes or most any other executive who were ever accused of fraud entered the corporate world thinking they\u2019d one day succumb to fraud. So, what is it that causes otherwise good people to do bad things? Let\u2019s talk a little about why good people make bad decisions, and a few ideas on how you can guide yourself away from traveling down that same path.<\/p>\n
In fraud prevention circles, the 10-80-10 principle is widely discussed. Consistently supported by research into criminology, this principle holds that in any given population the likelihood of fraud occurrences is as follows:<\/p>\n
Angelique was in the 80% category. There was financial pressure to make a car payment. There was an opportunity when she received the fake check. And she rationalized by saying that her family needed the car and she would be able to pay the money back.<\/p>\n
The combination of opportunity, pressure, and rationalization are what is widely known as the \u201cFraud Triangle.\u201d In the 1950s, criminologist and sociologist Donald Cressey carried out a study to understand the circumstances which had led embezzlers to commit their crimes.<\/p>\n
Cressey's hypothesis was:\u201cTrusted persons become trust violators when they conceive of themselves as having a financial problem which is non-shareable, are aware this problem can be secretly resolved by violation of the position of financial trust, and are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.” This hypothesis formulated the fraud triangle of opportunity, pressure, and rationalization.<\/p>\n
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Pressure.<\/strong> The next of these is motive \u2013 generally an event or condition which produces financial pressure. Individuals may have personal financial issues such as high medical bills or past-due mortgages. Others gamble or have addictions that may compel them to commit fraud. For some, it is simply the desire for a lifestyle they can\u2019t afford.<\/p>\n<\/li>\n Rationalization.<\/strong> Rationalization occurs when someone justifies why they commit fraud. For example, a person might say, \u201cI deserve to have a nice home.\u201d Employees might say \u201cI\u2019m just making up for being underpaid.\u201d Sometimes, a person will rationalize theft as \u201cborrowing.\u201d Other times, it may be a disgruntled employee who believes the company deserves it.<\/p>\n<\/li>\n<\/ul>\n Rationalization is perhaps the most dangerous of the three elements as this enables someone to maintain their code of ethics and avoid the guilt because they have convinced themselves that their act is acceptable.<\/p>\n New York Judge Jed S. Rakoff said of Rajat Gupta, former CEO of McKinsey & Company who was convicted for insider trading in 2012, “He is a good man. But the history of this country and the history of the world is full of examples of good men who did bad things.\u201d<\/p>\n Researchers have found that the perpetrators of fraud are most often just ordinary people who think of themselves as otherwise morally upright, law-abiding citizens. The process of making bad choices, unethical choices, begins with a simple, almost thoughtless decision.<\/p>\n You cannot compromise integrity without losing it entirely. Whether you lie a little or a lot, a lie is still a lie. Whether you steal a little or a lot, it is still theft. No one can claim to have integrity while excusing even \u201csmall\u201d transgressions.<\/p>\n\t\tRationalizing bad behavior<\/h3>\n
A slippery slope<\/h3>\n