Literature Review

The Fraud Behavior from the Perspectives of the Fraud Triangle

According to the Association of Certified Fraud Examiners, the fraud triangle developed by
Cressey in 1953 is a model for explaining the factors that cause someone to commit a fraud.
Fraud refers to a deception that is intentional and caused by an employee or organization for
personal gain (Sorunke, 2016). In other words, fraud is a deceitful activity used to gain an
advantage or generate an illegal profit. Also, the illegal act benefits the perpetrator and harms
other parties involved (Michael D et all, 2006).
Many researchers that using fraud triangle theory have emphasized behavior aspect in
relating unethical behavior (Cohen et al. 2010). They stated this fraud triangle in explaining the
fraud phenomenon can provide a comprehensive understanding of the fraud maker motivation
and increase fraud eradication program includes prevention, detection, and investigation fraud
cases (Dorminey, et al 2012).
Fraud Triangle consists of three components (pressure, opportunity and rationalization)
which, together, lead to fraudulent behavior. This fraud theory explained why trust violators
commit fraud and was widely used by regulators, professionals and academics (Kassem, 2012).

In this case, the factors could have been:

Figure 1: Fraud Triangle

The fraud triangle is a framework commonly used in auditing to explain the reason behind an
individual’s decision to commit fraud. The fraud triangle outlines three components that
contribute to increasing the risk of fraud: (1) opportunity, (2) pressure, and (3) rationalization.

a) The Fraud Triangle – Opportunity

Opportunity refers to circumstances that allow fraud to occur. In the fraud triangle, it is the only
component that a company exercises complete control over (Kassem, 2012).
Examples that provide opportunities for committing fraud include:

1. Weak internal controls

Internal controls are processes and procedures implemented to ensure the integrity of
accounting and financial information. Weak internal controls such as poor separation of
duties, lack of supervision, and poor documentation of processes give rise to opportunities
for fraud.
 
 2. Poor tone at the top
Tone at the top refers to upper management and the board of directors’ commitment to
being ethical, showing integrity, and being honest – a poor tone at the top results in a
company that is more susceptible to fraud.

3. Inadequate accounting policies

Accounting policies refer to how items on the financial statements are recorded. Poor
(inadequate) accounting policies may provide an opportunity for employees to manipulate
numbers.

b) The Fraud Triangle – Pressure

Pressure refers to an employee’s mindset towards committing fraud (Kassem, 2012).
Examples of things that provide incentives for committing fraud include:

1. Bonuses based on a financial metric

Common financial metrics used to assess the performance of an employee are revenues and
net income. Bonuses that are based on a financial metric create pressure for employees to
meet targets, which may cause them to commit fraud to achieve the objective.

2. Investor and analyst expectations

The need to meet or exceed investor and analyst expectations to ensure stock prices are
maintained or increased can create pressure to commit fraud.

3. Personal pressure
Personal incentives may include wanting to earn more money, the need to pay personal bills,
a gambling addiction, etc.

c) The Fraud Triangle – Rationalization

Rationalization refers to an individual’s justification for committing fraud (Kassem, 2012).
Examples of common rationalizations that fraud committers use include:

1. “They treated me wrong”

An individual may be spiteful towards their manager or employer and believe that
committing fraud is a way of getting payback.

2. “Upper management is doing it as well”

A poor tone at the top may cause an individual to follow in the footsteps of those higher in
the corporate hierarchy.

3. “There is no other solution”

An individual may believe that they might lose everything (for example, losing a job) unless
they commit fraud.
Research related to the fraud triangle has been performed by many researchers, which only focus
on pressure and opportunity element. Unfortunately, it is still rare for people who research fraud
triangle relates to rationalization element (Aghghaleh et al, 2014). The rationalization is closely
related to ethical aspect, and therefore ethics is one of important part in discussing fraud
mitigation (Young, 2004). It is also stated that although organization value through
organizational culture and ethics has been closely related to fraud mitigation, there are not so
many research of fraud and ethics (Jondle, 2013).

Based on the fraud triangle above, fraud happened if the three elements, which are
pressure, opportunity and rationalization happen at the same time. A fraud maker may have a
pressure situation such as the need for money for living cost. Susanto (2009) states that low
salary is one of the causes of the fraud. This is in accordance with the wage efficiency theory that
the low salary creates greater fraud risk compared to the high salary. This condition also happens
in some develop countries as the employees who have low salaries tend to do the fraud or some
medical professionals who don’t hesitate to play with their patient’s life with unnecessary
procedures (or even operations), just so they can bill the insurance company (Vikas, 2014).

Sandhu (2019) find that strong ambition, personal financial problem, law problem,
family problem includes unsatisfactory with current jobs are indicators that represent the
pressure element in the fraud triangle theory. This internal control framework relates to
opportunity element (Sanusi et al. 2015). Therefore, in the fraud triangle perspective, I think the
opportunity is a loop hole for a fraudmaker in that internal control. A fraudmaker tries to
maximize his/her probability in doing the fraud among the existence of the internal control.
 Berman, L. 2015. “Whistle-Blower: How a Doctor Uncovered a Nightmare.” Detroit News,
June 10.
www.detroitnews.com/story/news/specialreports/2015/06/10/whistle-blower-doctor-
uncoveredmedical-nightmare/71027690/

1st Case Scenario

In the first case, it has been shown a story of Michigan doctor, Dr Farid Fata, who was pleaded
guilty in 2014 to intentionally poisoning hundreds of patients. It’s really heart touching and
surprising that how a so famous doctor can do such things on such a big scale. He was trusted by
hundreds of people and he deceived most of them by making false diagnosis and inappropriate
treatment. The idea that a doctor would lie to a patient just to make money is shocking.
What could be worse than being diagnosed and treated for cancer? Later finding out that
your doctor lied and you never had it to begin with. Same has been done by Dr. Fata, he gave
chemotherapy to people who didn't need it, basically putting poison into their bodies and telling
them that they had cancer when they didn't have cancer. He saw patients not as people to heal,
but as commodities to exploit. One of his patient lost all teeth after Fata administered two years
of chemotherapy for cancer that the patient didn't have.
There were so many victims, but things were not exposed fully until in the year 2013
when Monica Flagg , 51 years old lady went to see Dr Fata to discuss her concern over increase
in M protein in her urine test. He told her she had multiple myeloma and lied about her medical
tests to make it appear that she needed insistent treatment. She had three bone biopsies and was
bombarded with immune boosters before being given one round of a chemotherapy drug. Soon
after her first shot of chemotherapy, she fell down, broke her leg and got admitted into Crittenton
Hospital Medical Center in Rochester Hills, Michigan.
Luckily that day Dr Fata was away from Michigan and the doctor on duty, Dr Soe
Maunglay,age 41, an Burmese oncologist and employee at Dr Fata’s clinic checked Mrs. Flagg
reports and surprised that her blood reports are very much normal and she was not having any
cancer. Dr Maunglay was already suspicious about his boss unconventional treatments. For
Monica Flagg, the painful injury turned out to be a blessing in disguise and Dr Maunglay
informed her that she was not having any cancer and better not to visit Dr Fata again.
Fata previously was also reported to the Michigan Department of Health in 2010 by
Angela Swantek, a nurse who went for job interview at Dr Fata’s clinic. She saw patients
receiving incorrect doses and prescriptions of chemotherapy and immediately realized it was a
scam to overbill insurance companies. However, it wasn't until 2013, when patient Monica Flagg
broke her leg after beginning a lifetime of chemotherapy prescribed by Fata that more red flags
cropped up.
Later, after Monica Flagg incident, Dr Maunglay managed to collect more evidence
against Dr Fata and brought his concerns to Fata's business manager, George Karadsheh.
Karadsheh risked his career to expose a doctor who gave chemotherapy to patients who did not
have cancer and he eventually took financial documents to a whistleblower attorney who brought
the case to the U.S. Attorney for the Eastern District of Michigan.

In the end, cancer doctor Farid Fata’s medical empire crumbled, and he was thrown in a prison. 
Discussion
In the case of dr. Farid Fata, He pleaded guilty to multiple counts of Medicare and insurance
fraud, money laundering, and soliciting kickbacks, while publicly admitting that he would
prescribed treatments that were medically unnecessary. It can be clearly seen that he must have a
certain situation that becomes his personal pressure.
As we know that he was a former hematologist/oncologist in Michigan Hematology-
Oncology (MHO), one of the largest cancer practices in Michigan, who also had certain
pressures in his life. This means that dr. Fata had a strong ambition to be a very rich people as his
pressure in the perspective of the fraud triangle theory (Sandhu, 2016).
We've heard a lot of weird stories about fraud. But this one was beyond fraud. It was
brutal. It was unlawful. It was risking people with poison. He doesn’t hesitate to play with their
patient’s life. I saw him as a doctor who take patients into unnecessary procedures (or even
operations), just so they can bill the insurance company for his business. He acquired a sterling
reputation as one of the best cancer specialists in Metro Detroit, but why he did such an evil
thing that is not match with the Hippocratic Oath to do no harm and priorize safety first for the
patient. This thing makes Physicians are no more healers, and healing is no longer an art, but it is
just a service rendered. Medicine, a once noble and holy profession, has been defined as
“services rendered” under the Consumer Protection Act. Physicians are vulnerable to multiple
civil litigations. The image of the Hippocratic gentleman is no more and has been replaced by
that of a harassed general practitioner like dr. fata did (Indla V, 2019).
The discussion in relation with the second element of the fraud triangle theory, which is
the opportunity, is described in the following sentences. In the case of dr. Fata, it can be seen that
he had been involved collusion Medicare and private health insurance companies over a period
of at least six years. He has the best opportunity to do this fraud since he has a good reputation as
one of the best cancer specialist. So, he can do this aggressive approach, which gave higher
doses of chemo drugs more frequently, a protocol he called "European protocol" to gain more
money. This question will come to our mind, how dr. Fata maintained his fraud practice patterns
for so long. As Sanusi et al. (2005) state that this opportunity comes from the weakness of the
internal control, therefore this dr. Fata fraud case happen. No one was really in a position to
question him at that time. His office staff stated that Fata frequently saw more than 70 patients in
a single clinic day, with much of the clinical documentation completed by a rotating cast of low-
paid international physicians that he sponsored. Patients testified that most of their encounters
with dr. Fata himself were no more than 2 or 3 minutes long. When the patients who asked dr.
Fata complaining about their care, they were directly challenged by dr. Fata about whether they
had done a prestigious oncology fellowship at Memorial Sloan Kettering Cancer Center as he
had. At this point, his big reputation in Michigan is his best weapon as an opportunity to do
fraud. On top of that, all of his nurses in his hospital/clinic were instructed to call only dr. Fata
about his patients, not another on-call physician. Medicare auditors are more adept at detecting
checklist-based coding noncompliance or goods and services billed for but never delivered than
at uncovering inappropriate practice patterns in which unnecessary treatments are actually
administered, because the ability to detect the latter requires medical knowledge. Pharmaceutical
representatives were also unlikely to have complained about Fata’s high drug sales volume. This
data strengthen the fact for inadequate accounting policies as a second example of opportunity to
do fraud. (Kassem, 2012).
 Schuchter et al. (2016) state that the pressure and the opportunity in fraud triangle are
the important elements in term of institution perspective as the factors that support the fraud
behavior. However, the rationalization, which is the third element of the fraud, is the important
factors of the fraud behavior because even though the opportunity and pressure element has been
existing, the fraudmaker has to rationalize his/her fraud behavior (Murphy, 2011). This
rationalization is related to the justification of the fraudmaker to their unethical and corrupt
behavior. Furthermore, based on those research, both the people who have high morality and
people who belong to an immoral person like dr. fattah will justify their fraud behavior before
they execute the fraud. The justification process is much more difficult for the high morality
compares to the immoral person (Sandhu,2019).
Murphy and Dacin (2011) state that when there have been both the pressure and the
opportunity, the fraudmaker has to win the dynamics process before doing the fraud. The people
who commit the fraud uses their rationalization in order to eliminate the negative effect of the
unethical behavior. This pressure and the opportunity have been influenced by the external
factors, meanwhile the rationalization has been influenced by the internal factors, which area
psychological aspect and cultural factors. Therefore, the rationalization becomes the most
important factor in controlling the fraud risk (Snell, 2009).
Based on the fraud triangle theory, the case of dr. Fatta, he had to cope with his ethical
dilemma as a doctor whether to do the fraud or not. However, finally, he decided to do the fraud
and neglect the ethical dilemma. He was arrested in 2013 on charges of prescribing
chemotherapy to patients who were either perfectly healthy or whose condition did not warrant
chemotherapy, then submitting $34 million in fraudulent charges to Medicare and private health
insurance companies over a period of at least six years. He pleaded guilty in 2014 to charges of
health care fraud, conspiring to pay and receive kickbacks, and money laundering.
Lesson learned from dr. Fatta case, which is related to the fraud behavior in the
perspective of the fraud triangle theory, fraud happens because of the existence of all the three
elements (pressure, opportunity and rationalization). However, the rationalization is the most
important element in the process of the fraud doing. Although there have been some certain
pressures and an opportunity in doing the fraud, it still needs the rationalization for a fraudmaker
before he/she commits the fraud. In other words, the rationalization of the fraud maker becomes
the crucial factor in determining the existence of the fraud (Cohen, 2010).

Conclusions and Opinion

It can be concluded that this fraud happens when there are pressure, opportunity, and the
rationalization. As we can see in dr. Fatta case, this financial crime in medical field isn’t
acceptable. I wondered how someone could meet with patients and think not about how to
respond to their needs with compassion and empathy but only care about how to maximize profit
for his own. He used his popularity and reputation as both of pressure and opportunity to harm
people by prescribing chemotherapy to patients who were either perfectly healthy or whose
condition did not need chemotherapy then took amount of money as fraudulent charges to
Medicare and private health insurance companies over a period of at least six years. Maybe, at
the first time he has also a dilemma in doing this fraud as a medical doctor who has to keep his
Hypocatriac Oath. However, finally, he decided to do the fraud because of his own greedy.
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