David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley. 

In this blog, the final of a three-part series on The Fraud Triangle, Certified Fraud Examiner David Anderson of David Anderson and Associates, a firm offering forensic accounting services in Philadelphia, reviews the three factors – Opportunity, Pressure, and Rationalization – that must be present for fraud to occur. 

If even one of these three situations can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away. After reviewing Opportunity and Pressure in the first two parts of this series, Anderson closes with a closer look at Rationalization. 

Rationalization is the mental process that a potential fraudster goes through to justify committing the fraud.

“Without being able to rationalize to oneself why it is OK to commit the fraud,” said Anderson, who provides forensic accounting services in Philadelphia, “a potential fraudster with the opportunity and pressure will not proceed.”

Anderson said examples of rationalization can include:

• I’m only temporarily “borrowing” the money to meet my financial obligations, and I intend to pay back the “loan” in full;
• I’m not being paid what I am worth, so I’m making up the difference through fraud;
• The company makes a lot of money, so it won’t be missed/ be affected by the small amount I am taking;
• The owner/management is committing fraud, so why shouldn’t I? and
• I have been “wronged” by the company/owner/management, so this is how I can get back at them.

Owners/managers can influence the rationalization process and discourage the rationalization to commit fraud by taking several anti-fraud steps:

• Provide anti-fraud training to all employees which, among other things, includes specific statements that committing fraud is wrong and unacceptable; that management is dedicated to preventing fraud; and that encourages employees to be on the lookout for fraud;
• Establish a “hotline” which allows employees to confidentially report suspected fraud;
• Establish a “tone at the top” that demonstrates that management is committed to fighting/preventing fraud (and not merely paying lip service to the fraud);
• Establish policies and procedures which allow an employee to pursue complaints about being “wronged” (real or imagined);
• Let employees know management is watching and is implementing such anti-fraud measures as surprise audits and regular management reviews.

Taking these steps as well as steps discussed in the previous two articles (establishing strong internal controls and getting to know one’s employees better) are all part of dismantling the three legs of the fraud triangle.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.