Fraud Theory, Made Simple

Embezzlement is a crime of opportunity.

Whatever motivates fraud perpetrators at their core—an addiction, a financial problem, greed—they are successful only because they take advantage of the accountability gaps in an organization, and hide in the shadows of employer ignorance. Read case studies »

The 10-10-80 Rule

Forensic accountants, auditors and those who write employee dishonesty coverage go by a rule of thumb called the 10-10-80 rule: 10 percent of your employees will always steal, 10 percent will never steal and the other 80 percent will steal under the right set of circumstances. Find more fraud statistics »

The Fraud Triangle

So what are the right circumstances for fraud? In the 1940s, a researcher named Donald R. Cressy interviewed about 200 people imprisoned for embezzlement. He excluded those who took a job with the intention of stealing and focused on “trust violators,” defined as honest people who crossed the line. Cressy developed the concept of the “Fraud Triangle” to describe the three elements that create the perfect storm for fraud:

  • Financial pressure: A financial need the perpetrator believes he or she cannot share with anyone. It could be an addiction (gambling, drugs, shopping), loss of household income, medical bills, credit card debt, or greed.
  • Rationalization: The most common justification of long-term, trusted employees who steal is “I’m just borrowing.” They may intend to pay it back, but rarely do so. Stealing is also easy to rationalize when an employee believes they have been treated unfairly.
  • Opportunity: The perception someone can borrow or steal and not get caught. Learn to spot red flags »

Perception is Reality

The only element the employer controls is opportunity. To mitigate the risk of theft, employers must reduce the perception that a trusted employee can “borrow” from them and not get caught. It is a perception, so the employer’s task is to create checks and balances so employees readily perceive the risk of discovery if they were to “borrow” from their employer.

Our Theory? Trust, but verify.

No one wants to live their life being suspicious of everyone they work with. On the other hand, you don’t want to walk around with a target on your back. So adopt the new best practice: trust, but verify. Develop a culture of accountability. Adopt processes based on transparency and integrity. You’ll gain security, enhance profitability and attract ethical people to your organization.

In This Section

Case Studies

Case studies about fraud and embezzlement situations and the lessons learned. Read our case studies »

Fraud Statistics

The Association of Certified Fraud Examiners (ACFE) estimates that 5% of revenue is lost to fraud and embezzlement every year. Applied to the U.S. GDP, this amounts to $730 billion every year! Learn more statistics about fraud »

Red Flags

You can spot fraud warning signs, if you know what to look for. Learn to spot the red flags »

Suspect Fraud?

If you suspect fraud in your organization, don’t wait to act. Greed adds up quickly, and the destructive patterns need to stop now. See how Averti Solutions can help »