Description
This paper aims to propose the application of the Crime Triangle of Routine Activity
Theory to fraud events as a complement to the universally accepted Fraud Triangle.
Accounting Research Journal
A tale of two triangles: comparing the Fraud Triangle with criminology’s Crime
Triangle
Grace Mui J ennifer Mailley
Article information:
To cite this document:
Grace Mui J ennifer Mailley , (2015),"A tale of two triangles: comparing the Fraud Triangle with
criminology’s Crime Triangle", Accounting Research J ournal, Vol. 28 Iss 1 pp. 45 - 58
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A tale of two triangles: comparing
the Fraud Triangle with
criminology’s Crime Triangle
Grace Mui
Thye & Associates, Bandar Baru Salak Tinggi, Malaysia, and
Jennifer Mailley
Department of Life Sciences, Anglia Ruskin University, Cambridge, UK
Abstract
Purpose – This paper aims to propose the application of the Crime Triangle of Routine Activity
Theory to fraud events as a complement to the universally accepted Fraud Triangle.
Design/methodology/approach – The application of the Crime Triangle is illustrated using
scenarios of asset misappropriations by type of perpetrator: external perpetrator, employee,
management and the board and its governing bodies.
Findings – The Crime Triangle complements the Fraud Triangle’s perpetrator-centric focus by
examining the environment where fraud occurs and the relevant parties that play their role in
preventing fraud or not playing their role, and thus, allowing the occurrence of fraud. Applying both
triangles to a fraud event provides a comprehensive view of the fraud event.
Research limitations/implications – The scenarios are limited to asset misappropriations with
one perpetrator. Future research can apply both triangles to different types of fraud and cases where
perpetrators collude to commit fraud.
Practical implications – This paper maps the Crime Triangle to the Fraud Triangle to provide
forensic accounting practitioners and researchers with a comprehensive perspective of a fraud
event. This comprehensive perspective of fraud is the starting point to designing fraud risk
management strategies that address both the perpetrator and the environment where the fraud
event occurs.
Originality/value – This paper is the frst to propose the application of the established Crime
Triangle environmental criminology theory as a complement to the Fraud Triangle to obtain a
comprehensive perspective of a fraud event.
Keywords Asset misappropriations, Crime Triangle, Environmental criminology, Fraud Triangle,
Routine activity theory
Paper type Conceptual paper
Introduction
Fraud has been examined using the universally accepted lens of the Fraud Triangle
(Albrecht, 2014; Dorminey et al., 2012). The Fraud Triangle takes a perpetrator-centric
focus to explain why the fraud was perpetrated (Cressey, 1953). The three elements of
the Fraud Triangle are:
The authors would like to thank Victoria Clout and the participants of the 3rd Forensic
Accounting Teaching and Research Symposium for their comments on earlier versions of this
paper.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1030-9616.htm
A tale of two
triangles
45
Received30 October 2014
Revised30 October 2014
Accepted21 April 2015
Accounting Research Journal
Vol. 28 No. 1, 2015
pp. 45-58
©Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-10-2014-0092
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(1) perceived pressure;
(2) perceived opportunity; and
(3) rationalisation (Cressey, 1953).
The perpetrator-centric focus of the Fraud Triangle explains the dispositions of the
perpetrator to explain the fraud. This naturally results in limiting any attempts to
describe, explain and affect fraud to describing, explaining or affecting only those
dispositions.
In this paper, we propose that fraud should be examined in the broader environment
where the crime is perpetrated because the immediate environment plays a key role in
determining human behaviour (Wortley and Mazerolle, 2008). The Crime Triangle of
Routine Activity Theory (Tillyer and Eck, 2011; Felson, 2008) extends the Fraud
Triangle’s perpetrator-centric focus to include the target/victim of the crime and the
place where the crime occurs. The Crime Triangle takes a macro view of the crime by
including supervisors of the perpetrator, victimand place; and the super controllers who
regulate the conduct of each of the supervisors. The super controllers include those
charged with governance of an organisation, such as the board of directors and
management and regulators. The inclusion of these super controllers allows us to
examine fraud in the context of the organisation’s corporate governance framework and
the regulatory framework that governs the organisation. Examining the broader
environment where fraud is perpetrated provides forensic accountants, anti-fraud
professionals and researchers with a comprehensive perspective of fraud events.
We argue that both lenses are useful in different contexts, depending on the research
or investigative questions being asked. Furthermore, we map the two theories to each
other, suggesting a novel synthesis of the two that contributes to both forensic
accounting and criminological practice and theory. The synthesis of these two theories
allows for an enhanced analysis of fraud and provides additional depth previously
lacking in some studies.
We begin with a reviewof the Fraud Triangle; discuss the Crime Triangle of Routine
Activity Theory; apply the Crime Triangle to asset misappropriations by different types
of perpetrators; map the two triangles to each other; before concluding with
recommendations for future research.
The Fraud Triangle
The term “Fraud Triangle” was coined by Albrecht (1991) to represent three elements
that must be present for fraud to occur:
(1) perceived pressure;
(2) opportunity; and
(3) rationalisation (Figure 1).
The Fraud Triangle evolved from research by Cressey (1953) and Sutherland (1944,
1940) on fraud that sought to explain why perpetrators committed the crime. Cressey
(1953) proposed that fraud occurs when the perpetrator has a non-shareable fnancial
problem; exploits an opportunity with a low risk of being caught; and rationalises that
the behaviour is justifed. The non-shareable fnancial problem leads to the perpetrator
facing perceived fnancial pressure, and hence, provides the motive for the crime. An
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opportunity arises when there are poor workplace conditions such as weak internal
controls that can be exploited. This opportunity becomes more attractive to the
perpetrator when there is a low probability of being caught. Finally, the perpetrator
rationalises that the behaviour is justifed because the perpetrator’s dilemma is
considered to be a special exception.
The fraud cases in the early twenty-frst century have highlighted that the
“non-shareable fnancial pressure” element of the Fraud Triangle is not always present
in every fraud incident (Dorminey et al., 2012). Kranacher et al. (2011) expanded the
motivations for fraud to include money, ideology, coercion and ego (entitlement).
Wolfe and Hermanson’s (2004) Fraud Diamond includes a fourth element, the
capability of the perpetrator to commit the fraud. Capability can arise from the
perpetrator’s position or function within the organisation; intelligence to exploit an
opportunity; ego or confdence; coercion skills; ability to lie effectively and consistently;
and ability to manage the stress of committing and managing the fraud over a long
period of time.
The Fraud Triangle, like other traditional criminology theories, focuses on the
perpetrator’s disposition to offend. Clarke (1997) argues that traditional criminology has
made the error of assuming that explaining criminals is the same as explaining the
crime. Criminological focus on the dispositions of offenders naturally results in any
attempts to describe, explain and affect crime being limited to describing, explaining or
affecting only those dispositions. Further, as the factors that affect dispositions are
extremely varied, interact in a complex manner and are spread throughout an
individual’s lifetime, policy that tries to infuence these factors is bound to be ineffective
(Clarke, 1997).
In addition to its perpetrator-centric focus, the Fraud Triangle is unique to the
societal context of the USA (Czielewski, 2012), which is a consequence of its origins in
the USA(Cressey, 1953; Sutherland, 1940, 1944). For example, the motivations for fraud
as identifed by US-based research – such as money, ideology, coercion and ego or
entitlement (Kranacher et al., 2011) – were not as evident in cases of fraud in China
(Czielewski, 2012). Czielewski (2012) proposed that the Fraud Triangle has to be
expanded to account for societal factors to be applicable at an international level. These
societal factors – namely, philosophical and religious tradition, culture, social norms,
rule of law, socioeconomic conditions and political status – relate to the environment
where the perpetrator resides and have an impact on the disposition of the perpetrator.
This suggests that expanding the focus fromthe perpetrator to include the environment
Figure 1.
The Fraud Triangle
47
A tale of two
triangles
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where the fraud event occurs provides forensic accountants and researchers with an
increased understanding of a fraud event.
The Crime Triangle of routine activity theory
Environmental criminology focuses on criminal events and the immediate
circumstances in which these occur (Wortley and Mazerolle, 2008). The underlying
premise is that the immediate environment plays a key role in determining human
behaviour (Bottoms and Wiles, 2002; Wortley and Mazerolle, 2008). Each crime is
viewed as the result of interactions between people and the situation they are in, or a
“person-situation-interaction” (Wortley and Mazerolle, 2008, p. 1).
Situational crime prevention is an application of environmental criminology. It aims
to decrease crime by increasing both the effort and the risk of crime commission,
decreasing the rewards, and removing the provocations and excuses that increase the
frequency of crime commission (Clarke, 1980; Cornish and Clarke, 2003). Situational
crime prevention requires a focus on specifc forms of crime rather than on the
perpetrator’s dispositions, and seeks to alter the nature and prevalence of crime
opportunities (Clarke, 1980).
Routine activity theory (Cohen and Felson, 1979) originally described the three basic
elements necessary for a direct-contact predatory crime to occur. Crime events occur
when:
(1) a motivated offender comes in to contact with;
(2) a suitable target, at a specifc time and place; and
(3) the absence of a capable guardian.
Only one of the three elements needs to be removed to prevent a crime from occurring
(Cohen and Felson, 1979). The central premise of routine activity theory is that a crime
event occurs when a motivated offender makes contact at a given time and place with a
suitable target, while a capable guardian is not present (Cohen and Felson, 1979).
The Crime Triangle of Routine Activity Theory (hereafter, The Crime Triangle)
comprises three triangles with one engulfng the other (Figure 2). The elements of the
inner triangle are the potential offender, the crime target and the place setting for the
crime. The inner triangle represents the three elements deemed necessary for an offence
to occur. The middle triangle depicts the supervisors of each element of the inner
triangle who can prevent the occurrence of the crime: handler, guardian and place
manager. The outermost triangle represents the super controllers who regulate the
conduct of the supervisors in the middle triangle.
When the offender escapes handlers, identifes targets free from guardians in an
environment not watched by managers, a crime occurs. In the case of fraud, the offender
or perpetrator is the fraudster or white collar criminal. The target of the fraud is the
victim of the fraudulent act such as the assets of the organisation. The assets can be
physical, such as inventory, or virtual, such as the customer database. The place is the
organisation, as that is where the assets are usually located.
The middle triangle depicts the supervisors of the offender, place and target. The
supervisor of the perpetrator is the handler. The supervisor of the place is the manager.
The supervisor of the target is the guardian.
The handler is someone who is able to affect the behaviour of the (potential) offender.
Ahandler is someone whose social bond or “handle” on the offender might be grasped to
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infuence the offender’s behaviour. The handler could prevent a crime event if they were
present or exerted infuence over the offender, even if the offender came into contact with
a suitable target that was not suffciently guarded (Felson, 1986).
Managers are individuals who control or monitor places, thereby infuencing access
to, and the behaviour tolerated in, those places (Eck, 1994 in Felson, 1995). Felson (1995,
p. 55) summarised the implication for crime control as the fact that, for a crime to occur,
“an offender has to get loose fromhis handlers, then fnd a target that is unprotected by
guardians in a place free from intrusive managers”.
A guardian was not necessarily a formal fgure such as a guard or a policeman, but
could be a teacher, parent, neighbour or a passer by. The guardian may deliberately or
inadvertently decrease the likelihood that a criminal act took place in their presence
(Cohen and Felson, 1979).
Clarke and Harris (1992) proposed the inclusion of crime facilitators: physical
facilitators, social facilitators and chemical facilitators. Physical facilitators either assist
in crime commission and/or help to overcome preventive interventions. They include
items such as computers which can be used to conduct fraudulent transactions and
telephones which can be used to organise fraudulent transactions. Social facilitators
such as peer pressure stimulate offending, often by providing excuses for offending
behaviour. Chemical facilitators comprise drugs including alcohol, which reduce
inhibitions and alter offenders’ perceptions of the likelihood and impact of the
consequences of crime (Clarke and Harris, 1992). The supply of facilitators is determined
by the physical environment, and the convergence of offenders with facilitators depends
on offenders’ routine activities. Controlling or altering the supply or usefulness of
facilitators is therefore an important factor in altering crime opportunities (Clarke and
Harris, 1992, 1997). Identifying and understanding the impact of these facilitators on the
perpetrator has the potential to contribute to the design of appropriate anti-fraud
measures.
Figure 2.
The Crime Triangle
49
A tale of two
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Super controllers are those who regulate the conduct of controllers. They thereby
affect whether supervisors fulfl their role as potential preventers of crime, and have an
indirect infuence on crime occurrence (Sampson et al., 2010). Formal super controllers
tend to be institutions such as the securities commission, central bank or stock
exchange. Diffuse super controllers rarely consist of a single entity and are described
instead as collections. Personal super controllers are networks of individuals or
individuals who directly infuence a controller. Super controllers can act in multiple
roles and on each other (Sampson et al., 2010).
According to Sampson et al. (2010) super controllers infuence supervisors in
accordance with the rational choice perspective, as the supervisors infuenced by super
controllers make decisions about when and how to intervene in crime prevention
according to considerations of the risk, reward, effort, excuses and provocations
involved. Thus, when a supervisor’s effort is minimal, and reward maximised,
super controllers will exert their full infuence over supervisors. When the opposite is
true, crime prevention is rarely implemented. Similarly, if the leverage used by a super
controller (for example reducing risk of negative publicity) is not aligned with the
concerns of the supervisor (they are, for example, most sensitive to cost), then crime
prevention is not likely to result (Sampson et al., 2010).
Applying the Crime Triangle to asset misappropriations
In this section, the Crime Triangle is applied to asset misappropriation scenarios that
differ by the types of perpetrator:
• external perpetrator;
• employee, management; and
• board and its governing bodies.
These scenarios are designed to illustrate the application of the Crime Triangle and are
not intended to provide solutions to all cases of fraud. All scenarios assume that there is
only one perpetrator. These scenarios will not discuss the Fraud Triangle because the
combination of the motivation, rationalisation and opportunity of the perpetrator would
be unique to each case of fraud.
Asset misappropriations “involves the theft of an entity’s assets” (AUASB, 2006).
The organisation’s assets are the target of the crime. The failure of the guardian of the
assets – e.g. poor or weak internal controls – provides the opportunity for the perpetrator
to steal the organisation’s assets.
The assets (target) are located in the organisation (place) and the organisation’s
corporate governance structure is the manager of the organisation. Access to the place
where the crime occurs can be physical or virtual through computer networks. Asset
misappropriations are frauds perpetrated against the organisation. Because each
organisation has its unique corporate governance structure, the scenarios will not delve
into the specifcs of this structure. The super controller of the place can be either the
management or the board and its governing bodies such as the audit committee.
Scenario 1: external perpetrator
External perpetrators (offenders) can take advantage of poor or weak internal controls
(guardian) to steal an organisation’s assets (target) from the organisation (place)
(Figure 3). For example, an external perpetrator can steal cash (target) from a cash
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register when there are poor access controls such as a cash register that is left
unattended by the cashier (guardian). Alternatively, an external perpetrator can steal
credit card information (target) froma server that has poor security controls (guardian).
In both examples, poor or weak internal controls have allowed the external perpetrator
to steal assets (e.g. cash, data) from the organisation.
The handler for the external perpetrator depends on the identity of the external
perpetrator. For example, the external perpetrator is a disgruntled former employee who
was recently terminated. This terminated employee attempts to steal company data
(target) by gaining access to the organisation’s database. The terminated employee’s
former immediate supervisor is the handler and the human resource department
manager is the super controller of the perpetrator.
The human resource department manager or the immediate supervisor (depending
on the organisation’s termination policies) should inform the super controller of the
guardian of the target about this termination to prevent this crime event. In this case, the
relevant super controller of the target is the information technology department
manager. The guardian of the data is the virtual access controls.
The Crime Triangle can highlight the roles that relevant parties did not play, thus
resulting in the crime taking place. In the case of the terminated employee, the crime
event can occur with either:
• the failure of the terminated employee’s former supervisor (assuming that this is
the responsible party) to informthe information technology department manager
of the termination; and/or
• the failure of the information technology department manager in updating virtual
access controls to prevent the terminated employee from accessing the data.
Scenario 2: employee fraud
When a current employee perpetrates fraud, the place where the crime takes place is
the organisation and the target would be the organisation’s assets (Figure 4). For
example, the warehouse clerk (offender) steals inventory (target) from the
warehouse (place). The warehouse supervisor is the handler for the warehouse clerk.
The warehouse manager is the super controller for both the perpetrator and the
assets.
Figure 3.
Fraud by external
perpetrators
51
A tale of two
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The fraud can occur if either:
• the warehouse supervisor (handler) failed to exercise adequate supervision over
the warehouse clerk (offender);
• the internal controls (guardian) were not suffcient or failed; or
• the corporate governance structure (manager) failed.
Scenario 3: fraud by management
In the case of fraud perpetrated by management, the corporate governance structure
plays a crucial role in comparison with the earlier scenarios. This is because
management is one of the key parties in the organisation’s corporate governance
framework. In asset misappropriations where management is the perpetrator, fraud is
more diffcult to prevent and detect because of management’s capability to perpetrate
the fraud and override controls by virtue of their position (Wolfe and Hermanson, 2004).
Further, management has the capability to disguise or conceal asset misappropriations
(AUASB, 2006, ASA 240 Paragraph 14).
The internal control system is the guardian of the assets and the Chief Executive
Offcer (CEO) would normally be the super controller for the assets. However, if the CEO
is the perpetrator, the board and its governing bodies would have to be step into the role
of super controller of the assets (Figure 5). If management overrides internal controls,
the internal controls are no longer effective as guardians of the organisation’s assets. In
such cases, the audit committee may require the internal audit function to evaluate if
there is a suspicion of fraud. In the event that there is a suspicion of fraud, external
parties such as forensic accountants or fraud investigators can be engaged to
investigate the fraud event.
Where the perpetrator is a member of the management team, the CEO would be the
relevant handler and the board and its governing bodies would be the super controller of
the perpetrator. If the CEOis the offender, the board and its governing bodies such as the
audit committee are the relevant handlers. The super controller of the perpetrator could
be the board or regulators in cases where there has been a violation of laws and
regulations.
For example, the fnance manager (offender) records the purchase of a laptop
computer (target) as an expense instead of a fxed asset with the purpose of taking the
Figure 4.
Employee fraud
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laptop computer home for personal use. The transaction cycle begins with the fnance
manager making a requisition for the purchase of a laptop computer. The purchasing
manager purchases the asset based on the approval by the relevant party as per the
organisation’s policies and procedures. The receiving department receives the asset and
delivers it to the fnance manager who then proceeds to record the purchase of the laptop
computer as an expense.
When the Crime Triangle is applied to this case, the relevant handler is the CEO and
the board and its governing bodies is the super controller of the perpetrator. The CEO
can engage the internal audit function to verify the existence of the laptop computer by
comparing the records of the purchasing department and the fnance department. The
relevant records are the fxed asset approval form and list of fxed assets purchased.
When the discrepancy is identifed in the documents, the internal auditor can look for
physical evidence of the asset’s existence in the fnance department. If the fnance
manager removed the asset from the organisation for use at home, the laptop computer
will not be found in the fnance department and cannot be accounted for by fnance
department staff and fnance manager.
Scenario 4: fraud by the board and governing bodies
Fraud perpetrated by members of the board and its governing bodies is diffcult to
prevent and detect because, like management, they have the capability to perpetrate
fraud by virtue of their position (Wolfe and Hermanson, 2004). Internal controls can
be circumvented, especially when members of the board and its governing bodies
collude with management to perpetrate the fraud. Therefore, it can be diffcult to prevent
the crime from occurring.
If the fraud is perpetrated by a member of the board, the Chairman of the board would
be the relevant handler (Figure 6). If there was a violation of laws and regulations, the
super controller of the perpetrator would be the relevant regulator. Regulators such as
the securities commission and stock exchange can investigate and prosecute members
of the board, its governing bodies and management who commit fraud.
The internal control system is the guardian of the assets and management would be
the super controller of the assets. If a member of the board and its governing bodies
circumvent controls, internal controls are no longer effective as guardians of the
organisation’s assets. In such cases, the management or audit committee may require
Figure 5.
Fraud by
management
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the internal audit function to evaluate if there is a suspicion of fraud. In the event that
there is a suspicion of fraud, external parties such as forensic accountants or fraud
investigators can be engaged to investigate the fraud. The Chairman of the Board, the
board as a whole or a governing body is the super controller of the place.
For example, a member of the board of directors (perpetrator), other then the
Chairman of the board, approves the write-off of a fully depreciated company car (target)
with the aimof misappropriating the asset for personal use. The normal procedure is to
dispose of the company car by auction. The offender drives the car away from the
organisation’s premises without suspicion. This fraud is diffcult to prevent. However, it
can be detected by verifying if the car was disposed by auction. If properly disposed by
auction, the disposal of the car would result in a cash receipt. There would also be
documentation for the transfer of ownership to purchaser.
When the Crime Triangle is applied to this case, the relevant handler is the
Chairman of the board. The board as a whole is the super controller of the
perpetrator. The Chairman of the board can engage the internal audit function to
verify the disposal of the car by auction. When the disposal cannot be verifed and
the car is not found on the organisation’s premises, the organisation may have to
write-off the car at zero value. In this scenario, a tip may be received on the
organisation’s ethics hotline reporting that the director was spotted driving the car
after the car was reported missing could lead to the case being solved. If there is no
tip, the fraud case may never be resolved.
A possible question raised in this scenario is how the car (target) could have been
removed from the organisation’s premises without detection. In other words, the
failure of the manager and super controller of the place contributed to the fraud
event. The organisation can re-examine its corporate governance structure to design
and implement appropriate fraud risk management strategies to address this
specifc fraud.
Mapping the Fraud Triangle to the Crime Triangle
The Fraud Triangle takes a micro viewof the perpetrator’s disposition. It focuses on
three elements – motivation, opportunity and rationalisation – to understand why
the perpetrator committed the fraud (Albrecht, 1991). Comparatively, the Crime
Triangle takes a macro view of the environment where fraud can occur. It includes
the offender/perpetrator and other parties who can play their role in preventing the
Figure 6.
Fraud by members of
the board and
governing bodies
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fraud or not play their role, and hence allowing fraud to occur. The overlap of these
two triangles is the offender/perpetrator. As such, the Fraud Triangle is a subset of
the Crime Triangle. In Figure 7, the Fraud Triangle is represented by the red
triangle.
It is not always possible to determine the perpetrator’s motivation and rationalisation
for perpetrating fraud. Therefore, the lack of knowledge of one or more elements of the
Fraud Triangle can contribute to diffculty in designing fraud risk management
strategies. The Crime Triangle complements the Fraud Triangle to provide the forensic
accountant with a comprehensive view of the fraud event. The advantages of this
comprehensive view to the forensic accountant and researcher are:
• the ability to identify the gaps in current fraud risk management strategies; and
• a starting point to designing fraud risk management strategies to address the
environment where fraud can be perpetrated.
Fraud risk management strategies that address the environment can result in reduced
opportunities that can be exploited by the potential perpetrator.
The following questionnaire is based on the combination of both theories. It aims to
provide the forensic accountant and researcher with an enhanced analysis of fraud. The
questions are:
Q1. Who is the perpetrator?
Q2. Why did the perpetrator commit fraud? In other words, what were the
motivation, opportunity and rationalisation for the fraud? This question
addresses the elements of the Fraud Triangle.
Q3. Who are perpetrator, handler, guardian, manager and super controllers?
Q4. Which party – handler, guardian, manager, and super controllers – played their
role and prevented the fraud event from occurring? How? Why?
Q5. Which party – handler, guardian, manager and super controllers – failed to play
their role, thus allowing the fraud event to occur? How? Why?
Q1 and Q2 relate to the Fraud Triangle while the remaining questions relate to the
Crime Triangle.
Figure 7.
Map of the Fraud
Triangle and the
CrimeTriangle
55
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Q3 identifes the perpetrator, supervisors and super controllers. Identifying the
supervisors and super controllers assists in determining their specifc roles. When a
supervisor or super controller cannot be identifed, their absence can signal a
missing link in an organisation’s fraud risk management strategies. Alternatively, it
can signal that the organisation is unclear of who (or which party) should be
responsible for that specifc role. Further, identifying the relevant supervisors and
super controllers leads to the defnition of each of their roles in relation to fraud risk
management.
Q4 and Q5 focus on whether the supervisors and super controllers played their roles
in preventing a fraud event from occurring. Asking the “how” and “why” follow-up
questions can provide insights into factors that contributed to the prevention of the
fraud event or the occurrence of the fraud event.
Conclusion
This paper introduced the Crime Triangle as a complement to the universally accepted
Fraud Triangle. The Crime Triangle’s macro view of a fraud event expands the Fraud
Triangle’s perpetrator-centric (micro) focus to provide a comprehensive perspective
of a fraud event. The Crime Triangle was illustrated by its application to asset
misappropriations by different types of perpetrator.
In this paper, the Fraud Triangle and Crime Triangle were mapped together and
a questionnaire was proposed to allow for an enhanced analysis of a fraud event.
This questionnaire can be used to identify gaps in the organisation’s current fraud
risk management strategies. Further, it can be used as a starting point to design
fraud prevention and detection strategies that address the environment where fraud
can be perpetrated.
The asset misappropriation scenarios in this paper are simplifed for illustration
purposes and only consider one perpetrator for each scenario. Future research can
apply both the Crime Triangle and the Fraud Triangle to real-life cases; cases of
collusion among perpetrators; other categories of fraud; and different jurisdictions.
Applying the triangles to different jurisdictions has the potential beneft of
understanding how societal factors affect the organisation’s corporate governance
structure, the elements of the Fraud Triangle and the environment where fraud can
occur.
References
Albrecht, W.S. (1991), “Fraud in government entities: the perpetrators and the types of fraud”,
Government Finance Review, Vol. 7 No. 6, pp. 27-30.
Albrecht, W.S. (2014), “Iconic Fraud Triangle endures: metaphor diagram helps everybody
understand fraud”, Fraud.
AUASB (2006), “Auditing standard ASA 240 the auditor’s responsibility to consider fraud in an
audit of a fnancial report”, Auditing and Assurance Standards, Melbourne.
Bottoms, A.E. and Wiles, P. (2002), “Environmental criminology”, in Maguire, M.R. (Ed.), The
Oxford Handbook of Criminology, 3rd ed., Oxford University Press, Oxford, pp. 620-656.
Clarke, R.V. (1980), “‘Situational’ crime prevention: theory and practice”, British Journal of
Criminology, Vol. 20 No. 2, pp. 136-147.
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Clarke, R.V. (1997), “Introduction”, in Clarke, R.V. (Ed.), Situational Crime Prevention: Successful
Case Studies, 2nd ed., Harrow and Heston Publishers, Guilderland, NY.
Clarke, R.V. and Harris, M. (1992), “A rational choice perspective on the targets of automobile
theft”, Criminal Behaviour and Mental Health, Vol. 2 No. 1, pp. 25-42.
Cohen, L.E. and Felson, M. (1979), “Social change and crime rate trends: a routine activity
approach”, Urbana American Sociological Review, Vol. 44 No. 4, pp. 588-608.
Cornish, D.B. and Clarke, R.V. (2003), “Opportunities, precipitators and criminal dispositions: a
reply to Wortley’s critique of situational crime prevention”, in Smith, M.J. and Cornish, D.B.
(Eds), Theory for Practice in Situational Crime Prevention, Volume 17 of Crime Prevention
Studies, Criminal Justice Press, Monsey, NY.
Cressey, D.R. (1953), Other People’s Money: The Social Psychology of Embezzlement, The Free
Press, New York, NY.
Dorminey, J., Fleming, A.S., Kranacher, M. and Riley, A. Jr (2012), “The evolution of fraud theory”,
Issues in Accounting Education, Vol. 27 No. 2, pp. 555-579.
Felson, M. (1986), “Linking criminal choices, routine activities, informal control and criminal
outcomes”, in Cornish, D.B. and Clarke, R.V. (Eds), The Reasoning Criminal: Rational
Choice Perspectives on Offending, Criminal Justice Press, New York, NY.
Felson, M. (1995), “Those who discourage crime”, in Eck, J.E. and Weisburd, D. (Eds), Volume 4 of
Crime Prevention Studies, Criminal Justice Press, New York, NY.
Felson, M. (2008), “Routine activity approach”, in Wortley, R. and Mazerolle, L. (Eds),
Environmental Criminology and Crime Analysis, Willan Publishing, Devon.
Kranacher, M.J., Riley, R.A. Jr and Wells, J.T. (2011), Forensic Accounting and Fraud Examination,
John Wiley & Sons, New York, NY.
Sampson, R., Eck, J. and Dunham, J. (2010), “Super controllers and crime prevention: a routine
activity explanation of crime prevention success and failure”, Security Journal, Vol. 23 No. 1,
pp. 37-51.
Sutherland, E.H. (1940), “White collar criminality”, American Sociological Review, Vol. 5 No. 1,
pp. 1-12.
Sutherland, E.H. (1944), “Is white-collar crime crime?”, American Sociological Review, Vol. 10 No. 2,
pp. 132-139.
Tillyer, M.S. and Eck, J.E. (2011), “Getting a handle on crime: a further extension of routine
activities theory”, Security Journal, Vol. 24 No. 2, pp. 179-193.
Wolfe, D.T. and Hermanson, D. (2004), “The fraud diamond: considering the four elements of
fraud”, The CPA Journal, Vol. 74 No. 12.
Wortley, R. and Mazerolle, L. (2008), Environmental Criminology and Crime Analysis: Situating
the Theory, Analytical Approach and Application, Willan Publishing, Devon.
Further reading
Cieslewicz, J.K. (2012), “The fraud model in international contexts: a call to include
societal-infuences in the model”, Journal of Forensic and Investigative Accounting, Vol. 4
No. 1, pp. 214-254.
Cressey, D.R. (1951), “Why do trusted persons commit fraud? A social-psychological study of
defalcators”, Journal of Accountancy, pp. 576-577.
57
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Dellaportas, S. (2013), “Conversations with inmate accountants: motivation, opportunity and the
Fraud Triangle”, Accounting Forum, Vol. 37 No. 1, pp. 29-39.
Gottschalk, P. (2010), “Theories of fnancial crime”, Journal of Financial Crime, Vol. 17 No. 2,
pp. 210-222.
About the authors
Grace Mui is a Senior Consultant at Thye & Associates, Malaysia. She received PhD in accounting
from the University of Queensland. Her research interests include auditor expertise, fraud detection
and risk management. Grace Mui is the corresponding author and can be contacted at:
[email protected]
Jennifer Mailleyis aSenior Lecturer incrime andinvestigative studies at AngliaRuskinUniversity,
UK. She is a forensic scientist with PhD in criminology from Loughborough University. Her main
research interest lies in tackling the illegal wildlife trade and other crimes against animals.
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
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doc_889186882.pdf
This paper aims to propose the application of the Crime Triangle of Routine Activity
Theory to fraud events as a complement to the universally accepted Fraud Triangle.
Accounting Research Journal
A tale of two triangles: comparing the Fraud Triangle with criminology’s Crime
Triangle
Grace Mui J ennifer Mailley
Article information:
To cite this document:
Grace Mui J ennifer Mailley , (2015),"A tale of two triangles: comparing the Fraud Triangle with
criminology’s Crime Triangle", Accounting Research J ournal, Vol. 28 Iss 1 pp. 45 - 58
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A tale of two triangles: comparing
the Fraud Triangle with
criminology’s Crime Triangle
Grace Mui
Thye & Associates, Bandar Baru Salak Tinggi, Malaysia, and
Jennifer Mailley
Department of Life Sciences, Anglia Ruskin University, Cambridge, UK
Abstract
Purpose – This paper aims to propose the application of the Crime Triangle of Routine Activity
Theory to fraud events as a complement to the universally accepted Fraud Triangle.
Design/methodology/approach – The application of the Crime Triangle is illustrated using
scenarios of asset misappropriations by type of perpetrator: external perpetrator, employee,
management and the board and its governing bodies.
Findings – The Crime Triangle complements the Fraud Triangle’s perpetrator-centric focus by
examining the environment where fraud occurs and the relevant parties that play their role in
preventing fraud or not playing their role, and thus, allowing the occurrence of fraud. Applying both
triangles to a fraud event provides a comprehensive view of the fraud event.
Research limitations/implications – The scenarios are limited to asset misappropriations with
one perpetrator. Future research can apply both triangles to different types of fraud and cases where
perpetrators collude to commit fraud.
Practical implications – This paper maps the Crime Triangle to the Fraud Triangle to provide
forensic accounting practitioners and researchers with a comprehensive perspective of a fraud
event. This comprehensive perspective of fraud is the starting point to designing fraud risk
management strategies that address both the perpetrator and the environment where the fraud
event occurs.
Originality/value – This paper is the frst to propose the application of the established Crime
Triangle environmental criminology theory as a complement to the Fraud Triangle to obtain a
comprehensive perspective of a fraud event.
Keywords Asset misappropriations, Crime Triangle, Environmental criminology, Fraud Triangle,
Routine activity theory
Paper type Conceptual paper
Introduction
Fraud has been examined using the universally accepted lens of the Fraud Triangle
(Albrecht, 2014; Dorminey et al., 2012). The Fraud Triangle takes a perpetrator-centric
focus to explain why the fraud was perpetrated (Cressey, 1953). The three elements of
the Fraud Triangle are:
The authors would like to thank Victoria Clout and the participants of the 3rd Forensic
Accounting Teaching and Research Symposium for their comments on earlier versions of this
paper.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1030-9616.htm
A tale of two
triangles
45
Received30 October 2014
Revised30 October 2014
Accepted21 April 2015
Accounting Research Journal
Vol. 28 No. 1, 2015
pp. 45-58
©Emerald Group Publishing Limited
1030-9616
DOI 10.1108/ARJ-10-2014-0092
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(1) perceived pressure;
(2) perceived opportunity; and
(3) rationalisation (Cressey, 1953).
The perpetrator-centric focus of the Fraud Triangle explains the dispositions of the
perpetrator to explain the fraud. This naturally results in limiting any attempts to
describe, explain and affect fraud to describing, explaining or affecting only those
dispositions.
In this paper, we propose that fraud should be examined in the broader environment
where the crime is perpetrated because the immediate environment plays a key role in
determining human behaviour (Wortley and Mazerolle, 2008). The Crime Triangle of
Routine Activity Theory (Tillyer and Eck, 2011; Felson, 2008) extends the Fraud
Triangle’s perpetrator-centric focus to include the target/victim of the crime and the
place where the crime occurs. The Crime Triangle takes a macro view of the crime by
including supervisors of the perpetrator, victimand place; and the super controllers who
regulate the conduct of each of the supervisors. The super controllers include those
charged with governance of an organisation, such as the board of directors and
management and regulators. The inclusion of these super controllers allows us to
examine fraud in the context of the organisation’s corporate governance framework and
the regulatory framework that governs the organisation. Examining the broader
environment where fraud is perpetrated provides forensic accountants, anti-fraud
professionals and researchers with a comprehensive perspective of fraud events.
We argue that both lenses are useful in different contexts, depending on the research
or investigative questions being asked. Furthermore, we map the two theories to each
other, suggesting a novel synthesis of the two that contributes to both forensic
accounting and criminological practice and theory. The synthesis of these two theories
allows for an enhanced analysis of fraud and provides additional depth previously
lacking in some studies.
We begin with a reviewof the Fraud Triangle; discuss the Crime Triangle of Routine
Activity Theory; apply the Crime Triangle to asset misappropriations by different types
of perpetrators; map the two triangles to each other; before concluding with
recommendations for future research.
The Fraud Triangle
The term “Fraud Triangle” was coined by Albrecht (1991) to represent three elements
that must be present for fraud to occur:
(1) perceived pressure;
(2) opportunity; and
(3) rationalisation (Figure 1).
The Fraud Triangle evolved from research by Cressey (1953) and Sutherland (1944,
1940) on fraud that sought to explain why perpetrators committed the crime. Cressey
(1953) proposed that fraud occurs when the perpetrator has a non-shareable fnancial
problem; exploits an opportunity with a low risk of being caught; and rationalises that
the behaviour is justifed. The non-shareable fnancial problem leads to the perpetrator
facing perceived fnancial pressure, and hence, provides the motive for the crime. An
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opportunity arises when there are poor workplace conditions such as weak internal
controls that can be exploited. This opportunity becomes more attractive to the
perpetrator when there is a low probability of being caught. Finally, the perpetrator
rationalises that the behaviour is justifed because the perpetrator’s dilemma is
considered to be a special exception.
The fraud cases in the early twenty-frst century have highlighted that the
“non-shareable fnancial pressure” element of the Fraud Triangle is not always present
in every fraud incident (Dorminey et al., 2012). Kranacher et al. (2011) expanded the
motivations for fraud to include money, ideology, coercion and ego (entitlement).
Wolfe and Hermanson’s (2004) Fraud Diamond includes a fourth element, the
capability of the perpetrator to commit the fraud. Capability can arise from the
perpetrator’s position or function within the organisation; intelligence to exploit an
opportunity; ego or confdence; coercion skills; ability to lie effectively and consistently;
and ability to manage the stress of committing and managing the fraud over a long
period of time.
The Fraud Triangle, like other traditional criminology theories, focuses on the
perpetrator’s disposition to offend. Clarke (1997) argues that traditional criminology has
made the error of assuming that explaining criminals is the same as explaining the
crime. Criminological focus on the dispositions of offenders naturally results in any
attempts to describe, explain and affect crime being limited to describing, explaining or
affecting only those dispositions. Further, as the factors that affect dispositions are
extremely varied, interact in a complex manner and are spread throughout an
individual’s lifetime, policy that tries to infuence these factors is bound to be ineffective
(Clarke, 1997).
In addition to its perpetrator-centric focus, the Fraud Triangle is unique to the
societal context of the USA (Czielewski, 2012), which is a consequence of its origins in
the USA(Cressey, 1953; Sutherland, 1940, 1944). For example, the motivations for fraud
as identifed by US-based research – such as money, ideology, coercion and ego or
entitlement (Kranacher et al., 2011) – were not as evident in cases of fraud in China
(Czielewski, 2012). Czielewski (2012) proposed that the Fraud Triangle has to be
expanded to account for societal factors to be applicable at an international level. These
societal factors – namely, philosophical and religious tradition, culture, social norms,
rule of law, socioeconomic conditions and political status – relate to the environment
where the perpetrator resides and have an impact on the disposition of the perpetrator.
This suggests that expanding the focus fromthe perpetrator to include the environment
Figure 1.
The Fraud Triangle
47
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where the fraud event occurs provides forensic accountants and researchers with an
increased understanding of a fraud event.
The Crime Triangle of routine activity theory
Environmental criminology focuses on criminal events and the immediate
circumstances in which these occur (Wortley and Mazerolle, 2008). The underlying
premise is that the immediate environment plays a key role in determining human
behaviour (Bottoms and Wiles, 2002; Wortley and Mazerolle, 2008). Each crime is
viewed as the result of interactions between people and the situation they are in, or a
“person-situation-interaction” (Wortley and Mazerolle, 2008, p. 1).
Situational crime prevention is an application of environmental criminology. It aims
to decrease crime by increasing both the effort and the risk of crime commission,
decreasing the rewards, and removing the provocations and excuses that increase the
frequency of crime commission (Clarke, 1980; Cornish and Clarke, 2003). Situational
crime prevention requires a focus on specifc forms of crime rather than on the
perpetrator’s dispositions, and seeks to alter the nature and prevalence of crime
opportunities (Clarke, 1980).
Routine activity theory (Cohen and Felson, 1979) originally described the three basic
elements necessary for a direct-contact predatory crime to occur. Crime events occur
when:
(1) a motivated offender comes in to contact with;
(2) a suitable target, at a specifc time and place; and
(3) the absence of a capable guardian.
Only one of the three elements needs to be removed to prevent a crime from occurring
(Cohen and Felson, 1979). The central premise of routine activity theory is that a crime
event occurs when a motivated offender makes contact at a given time and place with a
suitable target, while a capable guardian is not present (Cohen and Felson, 1979).
The Crime Triangle of Routine Activity Theory (hereafter, The Crime Triangle)
comprises three triangles with one engulfng the other (Figure 2). The elements of the
inner triangle are the potential offender, the crime target and the place setting for the
crime. The inner triangle represents the three elements deemed necessary for an offence
to occur. The middle triangle depicts the supervisors of each element of the inner
triangle who can prevent the occurrence of the crime: handler, guardian and place
manager. The outermost triangle represents the super controllers who regulate the
conduct of the supervisors in the middle triangle.
When the offender escapes handlers, identifes targets free from guardians in an
environment not watched by managers, a crime occurs. In the case of fraud, the offender
or perpetrator is the fraudster or white collar criminal. The target of the fraud is the
victim of the fraudulent act such as the assets of the organisation. The assets can be
physical, such as inventory, or virtual, such as the customer database. The place is the
organisation, as that is where the assets are usually located.
The middle triangle depicts the supervisors of the offender, place and target. The
supervisor of the perpetrator is the handler. The supervisor of the place is the manager.
The supervisor of the target is the guardian.
The handler is someone who is able to affect the behaviour of the (potential) offender.
Ahandler is someone whose social bond or “handle” on the offender might be grasped to
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infuence the offender’s behaviour. The handler could prevent a crime event if they were
present or exerted infuence over the offender, even if the offender came into contact with
a suitable target that was not suffciently guarded (Felson, 1986).
Managers are individuals who control or monitor places, thereby infuencing access
to, and the behaviour tolerated in, those places (Eck, 1994 in Felson, 1995). Felson (1995,
p. 55) summarised the implication for crime control as the fact that, for a crime to occur,
“an offender has to get loose fromhis handlers, then fnd a target that is unprotected by
guardians in a place free from intrusive managers”.
A guardian was not necessarily a formal fgure such as a guard or a policeman, but
could be a teacher, parent, neighbour or a passer by. The guardian may deliberately or
inadvertently decrease the likelihood that a criminal act took place in their presence
(Cohen and Felson, 1979).
Clarke and Harris (1992) proposed the inclusion of crime facilitators: physical
facilitators, social facilitators and chemical facilitators. Physical facilitators either assist
in crime commission and/or help to overcome preventive interventions. They include
items such as computers which can be used to conduct fraudulent transactions and
telephones which can be used to organise fraudulent transactions. Social facilitators
such as peer pressure stimulate offending, often by providing excuses for offending
behaviour. Chemical facilitators comprise drugs including alcohol, which reduce
inhibitions and alter offenders’ perceptions of the likelihood and impact of the
consequences of crime (Clarke and Harris, 1992). The supply of facilitators is determined
by the physical environment, and the convergence of offenders with facilitators depends
on offenders’ routine activities. Controlling or altering the supply or usefulness of
facilitators is therefore an important factor in altering crime opportunities (Clarke and
Harris, 1992, 1997). Identifying and understanding the impact of these facilitators on the
perpetrator has the potential to contribute to the design of appropriate anti-fraud
measures.
Figure 2.
The Crime Triangle
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Super controllers are those who regulate the conduct of controllers. They thereby
affect whether supervisors fulfl their role as potential preventers of crime, and have an
indirect infuence on crime occurrence (Sampson et al., 2010). Formal super controllers
tend to be institutions such as the securities commission, central bank or stock
exchange. Diffuse super controllers rarely consist of a single entity and are described
instead as collections. Personal super controllers are networks of individuals or
individuals who directly infuence a controller. Super controllers can act in multiple
roles and on each other (Sampson et al., 2010).
According to Sampson et al. (2010) super controllers infuence supervisors in
accordance with the rational choice perspective, as the supervisors infuenced by super
controllers make decisions about when and how to intervene in crime prevention
according to considerations of the risk, reward, effort, excuses and provocations
involved. Thus, when a supervisor’s effort is minimal, and reward maximised,
super controllers will exert their full infuence over supervisors. When the opposite is
true, crime prevention is rarely implemented. Similarly, if the leverage used by a super
controller (for example reducing risk of negative publicity) is not aligned with the
concerns of the supervisor (they are, for example, most sensitive to cost), then crime
prevention is not likely to result (Sampson et al., 2010).
Applying the Crime Triangle to asset misappropriations
In this section, the Crime Triangle is applied to asset misappropriation scenarios that
differ by the types of perpetrator:
• external perpetrator;
• employee, management; and
• board and its governing bodies.
These scenarios are designed to illustrate the application of the Crime Triangle and are
not intended to provide solutions to all cases of fraud. All scenarios assume that there is
only one perpetrator. These scenarios will not discuss the Fraud Triangle because the
combination of the motivation, rationalisation and opportunity of the perpetrator would
be unique to each case of fraud.
Asset misappropriations “involves the theft of an entity’s assets” (AUASB, 2006).
The organisation’s assets are the target of the crime. The failure of the guardian of the
assets – e.g. poor or weak internal controls – provides the opportunity for the perpetrator
to steal the organisation’s assets.
The assets (target) are located in the organisation (place) and the organisation’s
corporate governance structure is the manager of the organisation. Access to the place
where the crime occurs can be physical or virtual through computer networks. Asset
misappropriations are frauds perpetrated against the organisation. Because each
organisation has its unique corporate governance structure, the scenarios will not delve
into the specifcs of this structure. The super controller of the place can be either the
management or the board and its governing bodies such as the audit committee.
Scenario 1: external perpetrator
External perpetrators (offenders) can take advantage of poor or weak internal controls
(guardian) to steal an organisation’s assets (target) from the organisation (place)
(Figure 3). For example, an external perpetrator can steal cash (target) from a cash
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register when there are poor access controls such as a cash register that is left
unattended by the cashier (guardian). Alternatively, an external perpetrator can steal
credit card information (target) froma server that has poor security controls (guardian).
In both examples, poor or weak internal controls have allowed the external perpetrator
to steal assets (e.g. cash, data) from the organisation.
The handler for the external perpetrator depends on the identity of the external
perpetrator. For example, the external perpetrator is a disgruntled former employee who
was recently terminated. This terminated employee attempts to steal company data
(target) by gaining access to the organisation’s database. The terminated employee’s
former immediate supervisor is the handler and the human resource department
manager is the super controller of the perpetrator.
The human resource department manager or the immediate supervisor (depending
on the organisation’s termination policies) should inform the super controller of the
guardian of the target about this termination to prevent this crime event. In this case, the
relevant super controller of the target is the information technology department
manager. The guardian of the data is the virtual access controls.
The Crime Triangle can highlight the roles that relevant parties did not play, thus
resulting in the crime taking place. In the case of the terminated employee, the crime
event can occur with either:
• the failure of the terminated employee’s former supervisor (assuming that this is
the responsible party) to informthe information technology department manager
of the termination; and/or
• the failure of the information technology department manager in updating virtual
access controls to prevent the terminated employee from accessing the data.
Scenario 2: employee fraud
When a current employee perpetrates fraud, the place where the crime takes place is
the organisation and the target would be the organisation’s assets (Figure 4). For
example, the warehouse clerk (offender) steals inventory (target) from the
warehouse (place). The warehouse supervisor is the handler for the warehouse clerk.
The warehouse manager is the super controller for both the perpetrator and the
assets.
Figure 3.
Fraud by external
perpetrators
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The fraud can occur if either:
• the warehouse supervisor (handler) failed to exercise adequate supervision over
the warehouse clerk (offender);
• the internal controls (guardian) were not suffcient or failed; or
• the corporate governance structure (manager) failed.
Scenario 3: fraud by management
In the case of fraud perpetrated by management, the corporate governance structure
plays a crucial role in comparison with the earlier scenarios. This is because
management is one of the key parties in the organisation’s corporate governance
framework. In asset misappropriations where management is the perpetrator, fraud is
more diffcult to prevent and detect because of management’s capability to perpetrate
the fraud and override controls by virtue of their position (Wolfe and Hermanson, 2004).
Further, management has the capability to disguise or conceal asset misappropriations
(AUASB, 2006, ASA 240 Paragraph 14).
The internal control system is the guardian of the assets and the Chief Executive
Offcer (CEO) would normally be the super controller for the assets. However, if the CEO
is the perpetrator, the board and its governing bodies would have to be step into the role
of super controller of the assets (Figure 5). If management overrides internal controls,
the internal controls are no longer effective as guardians of the organisation’s assets. In
such cases, the audit committee may require the internal audit function to evaluate if
there is a suspicion of fraud. In the event that there is a suspicion of fraud, external
parties such as forensic accountants or fraud investigators can be engaged to
investigate the fraud event.
Where the perpetrator is a member of the management team, the CEO would be the
relevant handler and the board and its governing bodies would be the super controller of
the perpetrator. If the CEOis the offender, the board and its governing bodies such as the
audit committee are the relevant handlers. The super controller of the perpetrator could
be the board or regulators in cases where there has been a violation of laws and
regulations.
For example, the fnance manager (offender) records the purchase of a laptop
computer (target) as an expense instead of a fxed asset with the purpose of taking the
Figure 4.
Employee fraud
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laptop computer home for personal use. The transaction cycle begins with the fnance
manager making a requisition for the purchase of a laptop computer. The purchasing
manager purchases the asset based on the approval by the relevant party as per the
organisation’s policies and procedures. The receiving department receives the asset and
delivers it to the fnance manager who then proceeds to record the purchase of the laptop
computer as an expense.
When the Crime Triangle is applied to this case, the relevant handler is the CEO and
the board and its governing bodies is the super controller of the perpetrator. The CEO
can engage the internal audit function to verify the existence of the laptop computer by
comparing the records of the purchasing department and the fnance department. The
relevant records are the fxed asset approval form and list of fxed assets purchased.
When the discrepancy is identifed in the documents, the internal auditor can look for
physical evidence of the asset’s existence in the fnance department. If the fnance
manager removed the asset from the organisation for use at home, the laptop computer
will not be found in the fnance department and cannot be accounted for by fnance
department staff and fnance manager.
Scenario 4: fraud by the board and governing bodies
Fraud perpetrated by members of the board and its governing bodies is diffcult to
prevent and detect because, like management, they have the capability to perpetrate
fraud by virtue of their position (Wolfe and Hermanson, 2004). Internal controls can
be circumvented, especially when members of the board and its governing bodies
collude with management to perpetrate the fraud. Therefore, it can be diffcult to prevent
the crime from occurring.
If the fraud is perpetrated by a member of the board, the Chairman of the board would
be the relevant handler (Figure 6). If there was a violation of laws and regulations, the
super controller of the perpetrator would be the relevant regulator. Regulators such as
the securities commission and stock exchange can investigate and prosecute members
of the board, its governing bodies and management who commit fraud.
The internal control system is the guardian of the assets and management would be
the super controller of the assets. If a member of the board and its governing bodies
circumvent controls, internal controls are no longer effective as guardians of the
organisation’s assets. In such cases, the management or audit committee may require
Figure 5.
Fraud by
management
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the internal audit function to evaluate if there is a suspicion of fraud. In the event that
there is a suspicion of fraud, external parties such as forensic accountants or fraud
investigators can be engaged to investigate the fraud. The Chairman of the Board, the
board as a whole or a governing body is the super controller of the place.
For example, a member of the board of directors (perpetrator), other then the
Chairman of the board, approves the write-off of a fully depreciated company car (target)
with the aimof misappropriating the asset for personal use. The normal procedure is to
dispose of the company car by auction. The offender drives the car away from the
organisation’s premises without suspicion. This fraud is diffcult to prevent. However, it
can be detected by verifying if the car was disposed by auction. If properly disposed by
auction, the disposal of the car would result in a cash receipt. There would also be
documentation for the transfer of ownership to purchaser.
When the Crime Triangle is applied to this case, the relevant handler is the
Chairman of the board. The board as a whole is the super controller of the
perpetrator. The Chairman of the board can engage the internal audit function to
verify the disposal of the car by auction. When the disposal cannot be verifed and
the car is not found on the organisation’s premises, the organisation may have to
write-off the car at zero value. In this scenario, a tip may be received on the
organisation’s ethics hotline reporting that the director was spotted driving the car
after the car was reported missing could lead to the case being solved. If there is no
tip, the fraud case may never be resolved.
A possible question raised in this scenario is how the car (target) could have been
removed from the organisation’s premises without detection. In other words, the
failure of the manager and super controller of the place contributed to the fraud
event. The organisation can re-examine its corporate governance structure to design
and implement appropriate fraud risk management strategies to address this
specifc fraud.
Mapping the Fraud Triangle to the Crime Triangle
The Fraud Triangle takes a micro viewof the perpetrator’s disposition. It focuses on
three elements – motivation, opportunity and rationalisation – to understand why
the perpetrator committed the fraud (Albrecht, 1991). Comparatively, the Crime
Triangle takes a macro view of the environment where fraud can occur. It includes
the offender/perpetrator and other parties who can play their role in preventing the
Figure 6.
Fraud by members of
the board and
governing bodies
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fraud or not play their role, and hence allowing fraud to occur. The overlap of these
two triangles is the offender/perpetrator. As such, the Fraud Triangle is a subset of
the Crime Triangle. In Figure 7, the Fraud Triangle is represented by the red
triangle.
It is not always possible to determine the perpetrator’s motivation and rationalisation
for perpetrating fraud. Therefore, the lack of knowledge of one or more elements of the
Fraud Triangle can contribute to diffculty in designing fraud risk management
strategies. The Crime Triangle complements the Fraud Triangle to provide the forensic
accountant with a comprehensive view of the fraud event. The advantages of this
comprehensive view to the forensic accountant and researcher are:
• the ability to identify the gaps in current fraud risk management strategies; and
• a starting point to designing fraud risk management strategies to address the
environment where fraud can be perpetrated.
Fraud risk management strategies that address the environment can result in reduced
opportunities that can be exploited by the potential perpetrator.
The following questionnaire is based on the combination of both theories. It aims to
provide the forensic accountant and researcher with an enhanced analysis of fraud. The
questions are:
Q1. Who is the perpetrator?
Q2. Why did the perpetrator commit fraud? In other words, what were the
motivation, opportunity and rationalisation for the fraud? This question
addresses the elements of the Fraud Triangle.
Q3. Who are perpetrator, handler, guardian, manager and super controllers?
Q4. Which party – handler, guardian, manager, and super controllers – played their
role and prevented the fraud event from occurring? How? Why?
Q5. Which party – handler, guardian, manager and super controllers – failed to play
their role, thus allowing the fraud event to occur? How? Why?
Q1 and Q2 relate to the Fraud Triangle while the remaining questions relate to the
Crime Triangle.
Figure 7.
Map of the Fraud
Triangle and the
CrimeTriangle
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Q3 identifes the perpetrator, supervisors and super controllers. Identifying the
supervisors and super controllers assists in determining their specifc roles. When a
supervisor or super controller cannot be identifed, their absence can signal a
missing link in an organisation’s fraud risk management strategies. Alternatively, it
can signal that the organisation is unclear of who (or which party) should be
responsible for that specifc role. Further, identifying the relevant supervisors and
super controllers leads to the defnition of each of their roles in relation to fraud risk
management.
Q4 and Q5 focus on whether the supervisors and super controllers played their roles
in preventing a fraud event from occurring. Asking the “how” and “why” follow-up
questions can provide insights into factors that contributed to the prevention of the
fraud event or the occurrence of the fraud event.
Conclusion
This paper introduced the Crime Triangle as a complement to the universally accepted
Fraud Triangle. The Crime Triangle’s macro view of a fraud event expands the Fraud
Triangle’s perpetrator-centric (micro) focus to provide a comprehensive perspective
of a fraud event. The Crime Triangle was illustrated by its application to asset
misappropriations by different types of perpetrator.
In this paper, the Fraud Triangle and Crime Triangle were mapped together and
a questionnaire was proposed to allow for an enhanced analysis of a fraud event.
This questionnaire can be used to identify gaps in the organisation’s current fraud
risk management strategies. Further, it can be used as a starting point to design
fraud prevention and detection strategies that address the environment where fraud
can be perpetrated.
The asset misappropriation scenarios in this paper are simplifed for illustration
purposes and only consider one perpetrator for each scenario. Future research can
apply both the Crime Triangle and the Fraud Triangle to real-life cases; cases of
collusion among perpetrators; other categories of fraud; and different jurisdictions.
Applying the triangles to different jurisdictions has the potential beneft of
understanding how societal factors affect the organisation’s corporate governance
structure, the elements of the Fraud Triangle and the environment where fraud can
occur.
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Dellaportas, S. (2013), “Conversations with inmate accountants: motivation, opportunity and the
Fraud Triangle”, Accounting Forum, Vol. 37 No. 1, pp. 29-39.
Gottschalk, P. (2010), “Theories of fnancial crime”, Journal of Financial Crime, Vol. 17 No. 2,
pp. 210-222.
About the authors
Grace Mui is a Senior Consultant at Thye & Associates, Malaysia. She received PhD in accounting
from the University of Queensland. Her research interests include auditor expertise, fraud detection
and risk management. Grace Mui is the corresponding author and can be contacted at:
[email protected]
Jennifer Mailleyis aSenior Lecturer incrime andinvestigative studies at AngliaRuskinUniversity,
UK. She is a forensic scientist with PhD in criminology from Loughborough University. Her main
research interest lies in tackling the illegal wildlife trade and other crimes against animals.
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: [email protected]
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