Cunningham: Why Do Employees Commit Fraud?


Expert advises on how and why some workers violate company rules

In order to understand the “why” of anything, we need to first be clear as what we are talking about.  Defining fraud can be kind of tricky.  If an employee brings home office supplies for his children to use in school, is that fraud?  Or, is it simply an employee stealing office supplies?  Or, is it just chalked up as a cost of doing business?  What about parents wanting their children to attend college and to get financial aid, they understate their income?  Are they committing fraud?  Or, are they just “working the system” to gain access to funds available to families that qualify?

Depending on who is asked these questions, you’ll get varying responses. It will depend on each person’s background, values and beliefs.

So, before I answer the question that this article asks, it would be a good idea to make sure we are all on the same page as to what fraud actually is.

One of the best resources for this purpose is Black’s Law Dictionary, which defines fraud as “a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment”.  In other words, in general, it is when someone purposely tries to deceive another person (entity) in order to act in a way that will do harm. However, when we start talking about different types of fraud, it can be further broken down into categories and even subcategories along with various methods to commit each type of fraud.  Unfortunately, fraud has become so prevalent within almost every aspect of our lives that it is accepted as the status quo, which is a constant reminder of the sad state of the society in which we live.

So, why do people commit fraud?  Generally speaking, three things working in tandem have to be present: External Pressure, Opportunity and Rationalization. Stated another way, some kind of external situation has started the process, which pushes the employee to take advantage of an opportunity. This leads to finally justifying the act with some kind of explanation that serves their purpose.  If the motivation is strong enough, they will find or make an opportunity. We would like to think that our employees have a basic set of values and are responsible, moral and ethical, as well as have a sense of loyalty to their job and employer. But the truth is, although the majority of employees are likely to meet these criteria, those that do not are the ones that are likely to commit fraud.

Dr. Bob Cunningham, CRMA, CIA, CFE is CEO of The Cunningham Group