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The international fraud triangle

Article  in  Journal of Money Laundering Control · December 2021

DOI: 10.1108/JMLC-09-2021-0103

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International
The international fraud triangle fraud triangle
Anastasia Cheliatsidou
Department of Business Administration, University of Western Macedonia,
Kozani, Greece
Nikolaos Sariannidis
Department of Accounting and Finance, University of Western Macedonia,
Kozani, Greece
Alexandros Garefalakis
Hellenic Mediterranean University, Heraklion, Greece
Jamel Azibi
Université de Jendouba, Faculté des Sciences Juridiques,
Economiques et de Gestion de Jendouba, Jendouba, Tunisia, and
Paschalis Kagias
Department of Accounting and Finance, University of Western Macedonia,
Kozani, Greece

Abstract
Purpose – Fraud omnipresent in the media, the corporate world and the academic literature has attracted a
great deal of research interest. Fraud and its various types and forms have been characterized as significant
contributing factors to the development of severe financial crises. Recurrent financial crimes in both the
private and the public sectors remind us that fraud and its negative consequences paralyze economic entities
all over the world. Understanding the multidimensional nature of fraud is key to prevent and detect it. This
paper aims to examine the dominant fraud triangle model framework and its variants developed in the
accounting literature to provide the etiology of fraud.
Design/methodology/approach – Having identified the fraud theory developed so far, we provide a
theoretical framework for international fraud triangle.
Findings – Understanding the multidimensional nature of fraud is key to prevent and detect it. This paper
examines the dominant fraud triangle model framework and its variants developed in the accounting
literature to provide the etiology of fraud. Drawing on theoretical insights and useful criticism of the fraud
triangle, this paper proposes an international fraud triangle model framework to help auditors, managers,
regulators and academics in understanding fraud holistically in the private and public sector in a global
context. The authors finally provide an overview of fraud in the Greek Context.
Originality/value – This paper proposes an international fraud triangle model framework.
Keywords Fraud, Corruption, Fraud triangle
Paper type Research paper

Introduction
Fraud and its various types have been characterized as significant contributing factors to the
development of severe financial crises. Recurrent financial crimes in both the private and the
public sector remind us that Fraud and its negative consequences paralyze economic entities all Journal of Money Laundering
Control
over the world. Unpredicted corporate collapses, bank failures and a series of financial scandals © Emerald Publishing Limited
1368-5201
since the early 2000s have posed fundamental questions about auditing (role, value and DOI 10.1108/JMLC-09-2021-0103
JMLC independence of audit) (Apostolou and Crumbley, 2008) (Rezaee, 2005) and the accounting
profession (Dellaportas, 2013) (Sikka, 2010) (Albrecht et al., 2008). Public mistrust and a climate
of suspicion toward the accounting/auditing profession have been raised significantly since the
litany of financial scandals reveals weaknesses, such as possible lack of expertise, objectivity
and independence of auditors to name a few, thus challenging the role and value of auditing
(Sikka, 2010; Lokanan, 2015). No economic entity can escape fraud either profit or non-profit
such as sport and other charitable organizations (Ohalehi, 2019) also susceptible and vulnerable
to fraud and corruption worldwide (Kihl, 2018; Kihl et al., 2018; Kihl et al., 2017; Kihl et al., 2020;
Archambeault et al., 2015). Public mistrust is a logical outcome, as fraudulent activities, political
scandals, government corruption and other fraud-related issues impact the legitimacy of such
entities and institutions (Cooper et al., 2013).
Academic scholars (Albrecht and Albrecht, 2004), professional associations,
organizations [Center for Audit Quality (CAQ), 2010] and governmental officials in the
aftermath of the global financial crisis of the early 2000s showed great interest in the notion
of Fraud, especially in its detection and prevention methods (Asare and Wright, 2004).
According to the ACFE 2020 Report [1] to the Nations, businesses may lose as much as 5%
of revenue every year to fraud – approximately equating to US$4.5tn globally. The 2020
study found 2,504 instances of occupational fraud, across 125 countries, with Asset
Misappropriation, Corruption and Financial statement fraud as the three highest categories
of occupational fraud. Asset misappropriation is the stealing of a company’s asset for
personal use at the company’s expense or misuse of a company’s resources (Kassem, 2014).
Corruption is defined “as the misuse of authority for personal, subunit and/or organizational
gain” (cf. Sherman, 1980 as cited in (Ashforth and Anand, 2003) Financial statement fraud is
“a deliberate attempt by corporations to deceive or mislead users of published financial
statements, especially investors and creditors, by preparing and disseminating materially
misstated financial statements” (Rezaee, 2005).
Due to its multinational, multidimensional (Huber, 2017), secretive (Kihl et al., 2020),
pervasive, heterogeneous, recursive and eclectic (Lokanan, 2015) nature fraud has been
examined by various academic disciplines, such as sociology, criminology, psychology and
accounting/auditing. Evidently, an interdisciplinary review of fraud (Cooper et al., 2013;
Power, 2013) is a prerequisite to understand this complex socio-economic phenomenon.
Fraud-related research in the accounting/auditing field-based and formed on previous
research in the criminology field (Benson, 2009) (Morales et al., 2014). Fraud is not a new
phenomenon, as historically it seems to have been associated with the emergence of
systematic recordkeeping activities of early trade (Basu and Waymire, 2006).
Defining fraud is an “intellectual nightmare” (Lokanan, 2015; Geis and Meier, 1977;
Berger, 2011). The multidimensional nature of fraud makes it even more difficult to
determine its boundaries and find a single universal definition that captures the whole
essence of the term.
The Oxford Dictionary defines fraud as “the crime of cheating somebody in order to get
money or goods illegally.” Black’s (1979) Law Dictionary gives an extended definition of
fraud as follows:
[. . .] all multifarious means which human ingenuity can devise and which are resorted to by one
individual to get an advantage over another by false suggestions or suppression of the truth. It
includes all surprises, tricks, cunning or dissembling and any unfair way which another is cheated [2].
From a legal perspective fraud is a broad term and is defined as follows:
[. . .] an intentional perversion of truth for the purpose of inducing another in reliance upon it to
part with some valuable thing belonging to him or her or to surrender a legal right, but in its
 general or generic sense, fraud comprises all acts, omissions and concealments involving a breach International
of legal or equitable duty and resulting in damage to another [3] (37 C.J.S. Fraud § 1).
fraud triangle
From an auditing perspective, ISA 240 [4] defines fraud as “an intentional act involving the
use of deception to obtain an unjust or illegal advantage” (ISA 240, 11.) Similarly, from an
accounting perspective fraud is defined as follows:
An intentional act by one or more individuals among management, those charged with
governance, employees, or third parties, involving the use of deception that results in a
misstatement in financial statements that are the subject of an audit. (AICPA 2020 [5])
This paper reviews the dominant fraud model frameworks, with an emphasis on the fraud
triangle. The aim is twofold as follows:
(1) To understand the existing literature relating to the fraud triangle; and
(2) Propose a new model based on the classic fraud triangle which can be used in an
international environment, thus contributing to the existing literature by providing
a framework that can explain fraud occurrences not limited to a specific national/
country context.

A literature review was undertaken to make an inventory of publications relevant to the

current study which is predicated on the fraud triangle. The secondary data was obtained
by searching for the term “fraud triangle” with no journal specification from the following
databases: Science Direct, Proquest, Emerald. Through the process we identified additional
articles by retracing bibliographies to obtain the relevant articles considered to this study.
This paper begins with an overview of how the fraud triangle emerged and how
theoretical insights and new models developed with a literature review. The next section
addresses the common themes in the fraud triangle literature and proposes a new
framework model developed by incorporating previous theoretical insights to the fraud
triangle. Then, we provide an overview of Fraud in the Greek Context to highlight the points
of the proposed international model in an effort to emphasize the economic, political and
socio-cultural issues associated with the fraud. Finally, we summarize the conclusion that
highlights areas for future research.

Fraud triangle and models explaining corporate fraud

As this study is predicated and predominantly focused on the “Fraud Triangle” it is
important to explore the genesis of the term “fraud triangle” by providing a historical
overview the “FT,” its conceptualization, use, permutation and criticism. The “FT” has been
referred as a theory of fraud; a dominant fraud framework for the etiology of occupational
fraud (Lokanan (2015); “core of all fraud auditing standards for assessing the likehood of
fraudulent financial reporting” (Lou and Wang, 2009). According to (Morales et al., 2014) the
emergence and propagation of “fraud examination,” a hybrid field of knowledge (from
criminology and accounting), was built and based mainly on a particular image, that of the
“fraud triangle.”
The interdisciplinary nature of the term fraud leads us back to the acclaimed work of
leading scholars in sociology (Sutherland, 1937, 1949; Cressey, 1953, 1973; Wells, 1997) as
cited in Morales et al. (2014).
Edwin Sutherland, according to many scholars the most prominent influential
criminologist of the twentieth century (Akers, 1989), is credited with having coined the term
“white-collar crime” in 1939 to refer to occupational offenses committed by respectable
individuals of high social status. Sutherland explained the causes of criminal behavior by
JMLC rejecting previous criminological views “that attributed criminal behavior to poverty and its
associated pathologies” (Shapiro, 1990) and supported that criminal behavior is influenced
by multiple sociological factors rather than individual psychological traits. Sutherland’s
systematic sociological explanation of delinquency is reflected in editions of his book
Principles of Criminology first published in 1924 (Jensen, 2015). Sutherland’s “differential
association theory” emphasizes socialization and learning processes as causes of criminal
behavior Morales et al. (2014). The basic assertion of “differential association theory” is that
criminal behavior is learned by differentially interacting with others and through this
interaction a person associates with criminal and non-criminal “definitions” attitudes
(Akers, 1989). Criminal behavior then is learned when “because of an excess of definitions
favorable to violation of law over definitions unfavorable to violation of law” (Sutherland
and Cressey, 1980, p. 75 as cited in (Lokanan, 2018).
Following Sutherland’s steps and theoretical orientation, Donald Cressey (1919-1987), a
leading American criminologist, Sutherland’s doctoral student and “intellectual acolyte,”
co-authored from the 5th (Sutherland and Cressey, 1955) through the 10th (Sutherland and
Cressey, 1978) revised edition of Sutherland’s most broadly accepted textbook Principles of
Criminology, later Criminology (Akers, 1989).
Cressey interviewed 133 prison inmates convicted of embezzlement (a type of “white-
collar crime”) at three US prisons (California, IL and Indiana) and stated that the following
three conditions are present when a person becomes a “trust violator”:

The person has a non-shareable financial pressure;

A perceived opportunity exists for the person to commit the crime; and

Rationalization of the planned violation.

Cressey’s research which later became a book Other People’s Money: A Study in the Social
Psychology of Embezzlement, he develops the following hypothesis:
[. . .] trusted persons have become trust violators when they conceive of themselves as having a
financial problem which is non-sharable, are aware that this problem can be secretly resolved by
violation of the position of financial trust and are able to apply to their own conduct in that
situation verbalizations which enable them to adjust their conceptions of themselves as trusted
persons with their conceptions of themselves as users of the entrusted funds or property (Cressey,
1953, p. 30) as cited in Morales et al. (2014).
Cressey’s three conditions/factors that must be present for committing embezzlement, as
Schuchter and Levi (Schuchter and Levi, 2016) suggest, were probably inspired by the European
sociologist Svend Riemer’s work on embezzlement in a Swedish prison in the 1930s in which:
Riemer points out that a potential fraudster needs a situation, which offers an opportunity; a
driving force in an emergency situation, which may consist of a plurality of environmental
constellations; and psycho-pathological conditions have to be considered as well.
Lederman (2021) argues that Cressey was indeed inspired and refers to Reimer’s work, as
they were colleagues but his direction was totally different, as Cressey focuses on the honest
individual who eventually embezzles, whereas Reimer in his 1942 article “Embezzlement:
Pathological Basis,” focuses on cases involving medical pathologies.
Cressey’s hypothesis on the psychology of “trust violators” became widely known to the
general public through a series of translations to what we know as the “Fraud Triangle”
Morales et al. (2014). Interestingly, Morales et al. (2014) state “Cressey does not stress the
word “fraud” in his book; the index indicates only one page in which “fraudulent checks” is
found, while “embezzlement” is found on 24 pages,” as well as the term “fraud triangle”
which does not appear in Cressey’s writings. Exploring the genealogy of the “fraud triangle” International
Morales et al. (2014), concentrate on Joseph Wells, who begins his book Occupational Fraud fraud triangle
and Abuse (Wells, 1997, p. 11) presenting the “Fraud Triangle” in an effort to connect fraud
examination with previous studies in criminology, thus giving it “rhetorical strength.”
Joseph Wells (Wells, 1997) co-founder of the Association of Certified Fraud Examiners
(ACFE) [6] and author of the book Occupational Fraud and Abuse, which was published five
times under the title Corporate Fraud Handbook: Prevention and Detection, formalized the
concept of “Fraud Triangle.” In their attempt to find the origins of the fraud triangle Morales
et al. (2014) contacted ACFE and received the following answer:
“Dr Cressey developed the three items, but he did not call it the Fraud Triangle. Actually,
Dr Wells is the first person we know of to take the three items and put [them] in a triangle format.
He was working on a video featuring Dr Cressey in 1985 and he used a triangle graphic in the
video to illustrate the 3 factors that are present in most white-collar offenses. He began using the
triangle graphic in training programs after that time. People saw the graphic and began referring
to it as the Fraud Triangle over the years. So although we have never undertaken an extensive
review of its use, as far as we know, that’s how it came about” Morales et al. (2014).
Wells’ professional relationship and friendship with Cressey is described in his book and he states
that “although Cressey didn’t know it at the time, he created the concept of what eventually
became the Certified Fraud Examiner” (Wells, 1997, p. 21) as cited in (Lederman, 2021).
According to Lokanan (2015), Wells acknowledged the notion of non-sharable financial
problems in his reconstruction of Cressey’s work; however, he replaced it with the notion of
“pressure” (Wells, 1997, p. 11 as cited in Lokanan, 2015) (Figure 1).
In an attempt to find who coined the term “Fraud triangle” it appears that there are
misconceptions (Homer, 2020) in the fraud literature. Notably, W. Steve Albrecht ACFE’s
first president stated the following:
“Because of my early fraud research in business, many have asked me if I was the person who
first developed this triangle. The answer is yes and no.” [. . .] “I started calling the three elements
that motivate fraud the ‘fraud triangle’ and began stating that we can prevent fraud by
extinguishing any one of the three elements of the triangle. Here’s what I wrote in a 1991 journal
publication: “Research has shown that individuals commit fraud when a combination of three
factors exist: (1) perceived pressure, (2) perceived opportunity to commit and conceal and (3) a
way to rationalize the behavior as acceptable. These three factors combine to create the ‘fraud
triangle.’” (I even included quotation marks around the term because I hadn’t heard it used
before.)” (italics in original) (Albrecht, 2014).
Albrecht (2014) in the same article in Fraud Magazine mentions that Cressey should be
called “father of the elements of the fraud triangle.” It seems that both Wells, co-founder of

Pressure

Opportunity Rationalization

Source: Wells (2005). Principles of fraud examination. Figure 1.

Fraud triangle
Hoboken, New York: John Wiley and Sons
JMLC the ACFE in 1988 and Steven W.Albrecht, ACFE’s first president, were highly influenced by
Cressey’s work. Lederman (2021) states that “The label “fraud triangle” makes more sense
when applied to Albrecht’s work than to Cressey’s” since Cressey’s work was mainly
focused on embezzlement, whereas Albrecht’s focuses on the causes of fraud.
Lokanan (2015) citing Donegan and Ganon (2008) states concerned about the erosion of
ethical standards within the accounting profession, the American Institute of Certified
Public Accountants (“AICPA”) in 2002 and the International Federation of Accountants
(“IFAC”) in 2006, followed the ACFE’s footsteps and turned to Cressey’s (1953) work on the
fraud triangle for potential explanations of the frauds (Donegan and Ganon, 2008, p. 3;
O’Connell, 2007, pp. 733–784 as cited in Lokanan, 2015).
The fraud triangle (“FT”) has been used as a basic theoretical framework in the fraud
literature (Albrecht, 2014) and it is still considered to be one of the most commonly accepted
models by academics (Dellaportas, 2013; Smith and Crumbley, 2009; Homer, 2020) and
standard setters (Lokanan, 2018) as an educational tool in teaching (Daigle et al., 2014); in
criminology studies (Mui and Mailley, 2015) and in certification requirements by
professional associations Figure 2. Support for the “FT” is evident in auditing standards
around the world (IAASB, 2009; PCAOB, 2005), USA Statement on Auditing Standards
(SAS) No. 99: Consideration of Fraud in a Financial Statement Audit and international audit
standards (ISA 240) [7]; even though the term “fraud triangle” is not mentioned explicitly, it
is evident that its dimensions – pressure, opportunity, rationalization – are implied.
However, the “FT” is not without criticism (Choo and Tan, 2007; Donegan and Ganon,
2008; Dorminey et al., 2010; Murphy and Dacin, 2011; Morales et al., 2014; Huber, 2017).
Either by responding to the “FT”s perceived limitations and limited perspectives Cooper
et al. (2013) or by providing additional insights several variations and modifications of the
“FT” emerged; starting with the “Fraud Scale,” developed by (Albrecht et al., 1984). Albrecht
et al. (1984) introduced the Fraud Scale Model, a fraud prediction tool that assesses the
likelihood of fraud by examining and evaluating the relative weight power of pressure,
opportunity and personal integrity – “the personal code of ethical behavior each person
adopts” – Albrecht et al. (1984, p. 18). Personal integrity replaced the rationalization

Figure 2.
Fraud triangle
 International
fraud triangle

Figure 3.
Fraud scale

Figure 4.
Fraud diamond

Figure 5.
MICE model
JMLC

Figure 6.
Fraud pentagon

Figure 7.
New fraud triangle

Figure 8.
Meta model

component of the “FT.” The fraud scale as its name implies “weighs” the likelihood of fraud
occurrence: when the pressure and opportunity are high and the integrity is low, the
possibility of fraud occurrence is high (1984, p. 6).
In 2004 the Fraud Diamond is introduced by (Wolfe and Hermanson, 2004), who
proposed an enhancement to the “FT” by adding the dimension of individual “capability.”
They argue that fraud occurs when a person has the cognitive skills and abilities to
 International
fraud triangle

Figure 9.
International fraud
triangle

recognize the opportunity in an organization to commit fraud. They suggested four

observable traits for committing fraud as follows:
(1) Authoritative position or function within the organization.
(2) Capacity to understand and exploit accounting systems and internal control
weaknesses.
(3) Confidence that s/he will not be detected or if caught s/he will get out of it easily.
(4) Capability to deal with the stress created within an otherwise good person when
she commits bad acts.

Choo and Tan (2007) related the “FT” with:

The “Broken trust” theory developed by Albrecht et al. (2004); and

The “American Dream” sociological theory developed by (Messner and Rosenfeld,
1994) to explain corporate executive fraud.
JMLC Addressing the limitations of the rationalization component, they related the following
three key features of the American Dream theory:
(1) Intense emphasis on monetary success;
(2) Corporate executives exploit/disregard regulatory controls; and
(3) Corporate executives justify/rationalize fraudulent behavior (Choo and Tan, 2007).

Other researchers attempted to move beyond the classic components of the “FT” and replace them.
Free et al. (2007) introduce the “Organizational fraud triangle” with its components as follows:

Charismatic leadership;

Subverted management controls; and

A permissive culture. Murdock (2008) examines the dimensions of the “FT” arguing
that pressure/s can be non-financial associating them with social or political
dimensions and the individuals’ morality, such as “a lack of personal discipline” or a
gambling habit, drug addiction and extramarital relationship.

Rae and Subramaniam (2008) develop two models by replacing pressure and opportunity with
theories from organizational justice (“the term used to describe the role of fairness as it directly
relates to the workplace”) and internal control. They suggest fraud occurrence appears to be
higher when both internal control procedures (ICP) quality and employee perceptions of
organizational justice are poor. They emphasize the significance of the ethical environment and
the importance of ICP in the prevention and detection of fraud. Ramamoorti et al. (2009), using
“behavioral lens” in their approach, presented the “ABCs” of fraud to examine and categorize
fraud: a bad Apple (the individual), a bad Bushel (collusive fraud) and a bad Crop (sociocultural
factors that affect fraud). They examine fraud from the following perspectives:

Individual (Personality Characteristics of those that Commit Fraud),

Group (dynamics of collusive behavior) and

Macro sociocultural factors. Their study concentrates on the top executives “C-
suite” such as chief executive offices.

Kranacher et al. (2010) introduced the Money, Ideology, Coercion and Ego/Entitlement
(M-I-C-E) model, which modifies the pressure element of the “FT” and includes an expanded
set of motivations – beyond a non-shareable financial pressure – that complements the
pressure component of the “FTj.”
Another “FT” variant is introduced in 2011 the Crowe’s (2011) Fraud Pentagon Model,
widely known as the “Fraud Pentagon.” Developed by Jonathan Marks [8], the fraud pentagon
adds two additional components to the “FT” arrogance and capability (competence). Similarly,
Tugas (2012) proposes a Fraud Pentagon and adds the element of “external regulatory
influence” thereby extending Wolfe and Hermanson’s (2004) fraud diamond to fraud pentagon.
The new fraud triangle is developed by Kassem and Higson (2012), who propose a
revised “FT” model that adds Fraud Diamond’s capability; Fraud scale’s personal integrity to
the traditional “FT”s motivation and opportunity components; and the M-I-C-E model by
Kranacher et al. (2010). They suggest all the above mentioned models should be considered
by external auditors to better understand the causes of fraud.
Dorminey et al. (2012) developed a meta-model which attempts to add the probability of
committing fraud (the act, concealment and conversion) to the individual elements of the
fraud triangle. They provide a useful framework as a resource, recognizing expansions upon
the concept of the “FT.”
 Cieslewicz (2012), in his explorative study, evaluates the “FT” outside the USA, in the International
societal context of China by incorporating societal-level fraud factors and thus making the fraud triangle
fraud model more applicable for use at an international context. According to Cieslewicz
(2012), societal-level factors influence pressure, opportunity and capability and
rationalization. His model presents the “FT” surrounded by three cycles each representing
cultural-level factors as follows:
(1) Religious and philosophical traditions;
(2) Culture and social norms; and
(3) Societal conditions, such as Rule of Law, Political Climate and other socioeconomic
factors.

The common themes addressed in the fraud triangle literature are:

The psychology of the individual

Albrecht et al. (2010) and Albrecht et al. (2008) stress “greed” of the executives as a
contributing factor to the causes of fraudulent activities and “moral decay.” According to
Murphy (2012), auditors should be aware of the high Machiavellian personality because they
are more likely to misreport; Dorminey et al. (2010) analyze the “Predator”; Kelly and Hartley
(2010) mention the pathological gambler, Dellaportas (2013) mentions the “egocentric
motivations.” Yusof et al. (2015) suggest “greed and ignorance” as additional fraud risk
factors. Vousinas (2019) introduces the S.C.O.R.E. model (the acronym of the words:
stimulus, capability, opportunity, rationalization and ego), stemmed from the Fraud
diamond, to enhance the understanding behind the major factors that lead to fraud. Murphy
and Dacin (2011) build on the “FT” and develop a framework identifying three psychological
pathways to fraud as follows:
(1) Lack of awareness;
(2) Intuition coupled with rationalization; and
(3) Reasoning; thus contributing to the understanding of the psychology of
committing fraud by individuals who consider it wrongful action.

Ethics and corporate ethical climate are associated with fraud

Cohen et al. (2010) advocate that regulators should place greater consideration on ethics in
auditing standards to improve the ability of auditors to detect corporate fraud effectively.
Dorminey et al. (2010), Cohen et al. (2010), Martin (2007) and Albrecht et al. (2008) suggest
that the first element or contributing factor to fraud scandals in the early 2000s was “the
unethical actions by the expanding economies of the 1990s and early 2000s.” Other authors
stress the importance of ethical training by the auditors to fully understand and assess
clients’ integrity (Martin, 2007).
The importance of internal control and corporate governance is central in the majority of
fraud-related studies (Albrecht et al., 2008; Rae and Subramaniam, 2008; Dellaportas, 2013;
Free et al., 2007; McMahon et al., 2016).

Auditor’s role
Despite regulations, fraud still exists and naturally, a question emerges “why auditors fail to
detect fraud?” Asare et al. (2015) developed a multidimensional framework that identified
four factors that inhibit auditors to detect fraud as follows:
JMLC (1) The audit process;
(2) Institutional forces (regulatory and legal environment);
(3) Auditor incentives; and
(4) Auditor knowledge training and experience (cumulative knowledge and experience
of auditors).

Kleinman et al. (2020) drawing on (Asare et al., 2015) propose the following factors
attributable to the auditors’ failure to detect fraud: mistakes around the audit process;
auditor inherent factors; institutional factors; and morality.

Critique of the “fraud triangle”

Donegan and Ganon (2008) criticize the “FT” and highlight its limitations in the way crime
is viewed ignoring and downplaying a macro sociological view of crime. They examine
fraud through “group level” criminological approaches and perspectives by introducing
strain and “differential association theory” and “coercion theory.” They also challenge
“FT”’s empirical support. They argue that to understand and prevent fraud the phenomenon
should be placed and examined within the context of criminology research. They finally
criticize the AICPA for moving “too quickly in adopting Cressey’s fraud triangle as the
explanatory model for financial fraud in Statement on Auditing Standards (SAS) No. 99.”
Dorminey et al. (2010) argue that the “FT” is not an adequate prevention and detection
tool because of its fraudster-centric perspective. They argue that two of its attributes
pressure and rationalization are non-observable to the auditor. Therefore, not sufficient
enough to be used as a tool to prevent and detect fraud. They also state that the Perceived
pressure – non-shareable financial need – is not a complete descriptor of the fraudster’s
motivation(s) and the Perceived opportunity attribute does not address collusive behavior or
management override. Lokanan (2015) also argues that the fraud triangle is not adequate
enough to detect fraud due to the absence of the required criteria to address each and every
incident of fraud, thus questioning its applicability in terms of relevance and extent in all
fraud occurrences. However, Lokanan (2018) lends support to the “FT” after expanding on
the understanding of differential association theory.
Free and Murphy (2013) argue that the “FT” does not address the phenomenon of “co-
offending” and provides a “solo-offending” view of fraud crimes focusing on the psychology
of the fraudster. They propose a broader view by incorporating the concept of “co-
offending” in fraudulent acts as it appears that in many cases the opportunity is accessed by
building a co-offending group. Similarly, et al. (2013) state that the “FT” ignores group
dynamics. Soltani (2014) states that the “FT” does not offer an adequate basis for fraud
analysis and presents a modified framework by taking into consideration as follows:
(1) The characteristics of control environment –financial environment;
(2) Laws and regulations; and
(3) organizational ethical climate.

Morales et al. (2014) explore the genealogy of the “FT” by following various chains of
translations (unexpected twists and deformations that may occur in the spread of ideas)
underlying its construction stating “the fraud triangle focuses attention on the fragility of
individual morality and establishes the organization’s duties in controlling “risky
individuals.”[. . .] In so doing, socio-historical visions of fraud are marginalized and
relegated to the periphery of the field.”
 Similarly, Lokanan (2015) criticizes the ACFE’s for perpetuating a discourse that International
presents a “restricted version of fraud” stating that Fraud as a multifaceted phenomenon fraud triangle
may not fit into a particular framework and concludes that the “FT” should not be seen “as a
sufficiently reliable model for antifraud professionals.”
The strongest critique comes from (Huber, 2017), who argues that the “FT” does not
apply to fraud and cannot be used in forensic accounting research because Cressey’s triangle
has nothing to do with fraud but embezzlement. He states that researchers should examine
the n dimensions of fraud by taking into consideration the following factors: Personal;
Organizational; Legal/regulatory environment; Economic regime; Political regime; Cultural
dimensions; and Sociological factors.

The new proposed framework model

As Cooper et al. state “The accounting research on fraud seems to accept legal definitions of
fraud and assumes that such laws are universal and uncontested” without taking into
consideration the existing differences in laws, regulations, business practices, cultural
values and ethics among countries. Zahra et al. (2005) exploring the antecedents of
management fraud support that:
Although the motivation to commit managerial fraud might be deeply embedded in top
managers’ personal ambitions, histories and complex personality structures, several societal,
industry and organizational factors might encourage and promote fraud.
Taking into consideration the above analysis we strongly believe that in understanding the
etiology of fraud all models should be examined in a global context so that we can identify
and explore other dimensions of fraud in varying cultural environments. Coopers et al.
(2013) also suggest:
[. . .] that accounting fraud needs to be understood in a social, legal, political and economic
context, such as whether a particular society encourages (or not) risk taking, socializes losses, or
encourages rule following [. . .]. What is seen as fraud or corruption is likely to vary across
contexts and over time; the dynamics and the social construction of fraud need to be considered.
Mui and Mailley (2015) state that the “FT” is “unique” to the US context, as it originated the
USA, thus it does not consider other cultural, political, economic factors in an international
level.
Fraud is a global problem (Apostolou and Crumbley, 2008; Murdock, 2008) and as such
“cuts across ideological and cultural divides” (Zahra et al., 2005). Watson (2003) finds
differences in the way cultures perceive fraud. Yamen et al. (2017) examine the role of
national culture on financial crime and suggest that financial crime increases if the country’s
profile is characterized by low uncertainty avoidance, low individualism, high masculinity
and low long-term orientation. Aggrarwal and Goodell (2014) stress the significant role of
national culture in finance research. Tsakumis et al. (2007), examine National culture and its
impact on non-compliance across countries. Albrecht et al. (2010) stress that cultural
rationalizations have a significant impact on the likelihood of fraud in cultures worldwide
and state that research on the relationship between national culture and fraud is limited and
“understudied.” Cultures, especially Western and Eastern ones, differ significantly in their
attitudes toward right and wrong behavior (Morgan and Burnside, 2014) in a business
environment, such as whistleblowing, loyalty, dependency and respect to hierarchy and
secrecy. These cultural differences combined with absent or limited regulation protection
may hinder fraud detection and prevention. For example, Japan’s Whistleblower Protection
Act, enacted in 2006, applies only to employees (Morgan and Burnside, 2014).
JMLC Responding to the research needs for an “optimal” model as (Boyle et al., 2015) named it, I
propose an integrated model based on the Ceislewicz’s (2012) model, Kranacher et al. (2010)
MICE model. The “FT” evolves and during this process it is essential to consider theoretical
insights, as well as critiques of to fully understand its multifaceted nature. As Morales et al.
(2014) state “fraud triangle articulations privilege individualistic explanations of fraud to the
detriment of sociological explanations that highlight fraud’s sociopolitical nature and
locates its causes in institutional and historical arrangements.” Taking into consideration
the impact of culture on accounting values and systems (Gray and Vint, 1995; Gray, 1988). I
altered Cieslewicz’s (2012) factors and I added the factors that should be examined in a
broader multilayered perspective and categorized them as follows:

Political environment of a country: Political stability, government effectiveness,
freedom of the press, legal enforcement mechanisms.

Economic environment of a country: Economic growth, the relationship-based economy of
or not, quality of financial reporting (Tsipouridou and Spathis, 2012, Earnings
management and the role of auditors in an unusual IFRS context: The case of Greece),
governance transparency, technology environment and financial crimes (Rebovich, 2021).

Legal and regulatory environment of the country: Rules regulations, legal system
and effectiveness, whistleblowing protection legislative framework (Loyens and
Vandekerckhove, 2018), allocation of resources in legal agencies for fraud detection
and prosecution. Institutional context and regulatory environment Gabbioneta et al.
(2013). In a strong high quality legal environment and system “potential whistle-
blowers are more likely to blow the whistle because they trust the judicial system to
hold fraudsters accountable” (Ozili, 2016).

Cultural and societal aspects of a country: Culture, ethics, norms religious orientation
(Said et al., 2018), philosophical traditions, cultural aspects (Hofstede, 1980, Culture’s
Consequences: International Differences in Work-Related Values) (Watson, 2003).
Knechel and Mintchik (2020) introduce the concept of “fraud tolerance” exploring
the relationship of fraud tolerance with numerous cultural attributes using data
from the World Values Survey in the USA. The find that persons with stronger self-
enhancing (self-transcending) values exhibit higher (lower) fraud tolerance. It would
be interesting to see similar research in other countries which will eventually may
give answers to why societies tolerate fraud to what extent this affects the
neutralization of fraud phenomena worldwide.

Organizational environment: Ethical climate, type of ethical climate (Murphy and Free,
2016), organizational culture (Ashforth and Anand, 2003), internal control system,
corporate governance and control mechanisms (Soltani, 2014), “Organizational Moral
Structure” (Roszkowska and Melé, 2020) “fraud dynamics” in an organization (Davis
and Pesch, 2013). Studies indicate that many frauds were appeared as a result of
collusion (Lokanan (2015) examining organizational factors, therefore, appears to be
significant (Cooper et al., 2013). Certain organizational characteristics and attributes,
such as structure, managerial level, decentralized or centralized decision processes, size
and organizational structure and ownership types, may provide opportunities for illegal
activities either by employees or management (Gabbioneta et al., 2013).

Fraud in the Greek context

Political and economic environment. Greece is a country that experienced a significant deep
economic crisis, started in 2009 as “fiscal” crisis and turned to a sovereign external debt
crisis (Matsaganis, 2012) that reached 127% of its gross domestic product (GDP) (Ikonomou, International
2018). The Greek crisis not only lasted long but also affected both the public and private fraud triangle
sector with serious socio-economic consequences, such as recession, income drops, high
unemployment (Karafolas and Alexandrakis, 2015), social spending cuts (Pentaraki, 2013),
poverty (Kougias, 2014; Kottika et al., 2020) and the struggle of Greek people to survive
(Kyriacou, 2016). The exhausting draconian austerity measures such as restrictive income
policy and drastic limitation of public expenses (Tsipouridou and Spathis, 2012, Earnings
management and the role of auditors in an unusual IFRS context: The case of Greece)
imposed by the Greek government to meet economic reform were inevitable as an outcome
of the agreement with the European Commission, the European Central Bank, the and
International Monetary Fund (referred to as the “troika”) in 2010 (IMF, 2010; Matsaganis,
2012). Studies also indicated an increase in suicide trends as an outcome of the economic
crisis (Papaslanis et al., 2016) Policy-based explanations of the debt crisis include among
other causes corruption and weak tax collection (Ikonomou, 2018).
Greece had to undertake key structural reforms in many areas, such as the fight against
corruption, among others, to receive financial assistance (FATF, 2019; European
Commission, 2014).

Fraud in the Greek context

Greece’s ranking by Transparency International’s Greece (Transparcy International, 2020)
index indicates that Greece has improved in its global position from 80th in 2010 to 69th in
2014 and 59th in 2020. Apparently, Greece in not immune to fraud and corruption as recent
scandals emerged such as the Novartis case. Novartis Hellas S.A.C.I. (Novartis Greece), a
subsidiary of Novartis AG, a Switzerland-based global pharmaceutical company was fined
US$233m in criminal monetary penalties for violations of the Foreign Corrupt Practices Act
(FCPA) [9].
The shadow economy or “hidden economy” or “black economy” or any other synonym
refers to some type of shadow economy activities defined as “all economic activities which
are hidden from official authorities for monetary, regulatory and institutional reasons”
(Medina and Schneider, 2018). In terms of Greece’s ranking in shadow economy, Greece has
a 27.06% of GDP score among 158 countries (Medina and Schneider, 2018) while the average
size of the shadow economy of the 158 countries from 1991 to 2015 was 31.9%. Other
researchers estimate the size of the shadow economy in Greece between 28%–30% (Bitzenis
and Makedos, 2014).
Greece’s ranking in the Basel AML Index [10] is 4.56 out 10 which places Greece in
medium risk countries (Basel Institute on Governance, 2019). The Index of Public Integrity
developed by the European Research Center for Anti-Corruption and State Building
(ERCAS) and the Hertie School of Governance highlights that in 2015 Greece ranks 38/109
with a score 7.10, in 2017 with a score 7.25 and 39/109, in 2019 with a score 7.22 and 38/117
(Mungiou-Pippidi et al., 2019).

Cultural dimensions and accounting values

Drawing on Hofstede’s (1980, 1991) cultural dimensions (Hofstede et al., 2010) and Gray’s
derived accounting culture value dimensions (Gray, 1988) (Borker, 2012) developed a
framework within which Hofstede and Gray’s hypotheses are summarized in a table
format and show how they are connected and associated with each other. Based on
Borker’s framework (Table 1), the following attributions of Gray accounting values are
proposed for Greece Statutory Control, Uniformity, Conservatism and Secrecy
JMLC (Tsipouridou and Spathis, 2012, Earnings management and the role of auditors in an
unusual IFRS context: The case of Greece).
Greece has high scores in Uncertainty Avoidance (UA) 100, in Power Distance (PD) 60
and a relatively low score in Individualism (IDV) and according to (Tsakumis et al., 2007)
individuals in a high UA society should be expected to view tax evasion as a means of
reducing ambiguity which is also validated by fraud-related studies in Greece (Krambia-
Kapardis and Papastergiou, 2016). Tsakumis et al. (2007) also find that higher (lower)
uncertainty avoidance and power distance are associated with higher (lower) tax evasion
levels across countries while higher (lower) individualism is associated with lower (higher)
tax evasion across countries, as they hypothesized; which places Greece among the
countries with a non-compliant profile.
In an effort to explore and investigate how Greeks, the public in general, tolerate fraud
and corruption we went through the World Value Survey [11] which includes the attitudes
beliefs and values toward corruption among others. It seems that Greeks are highly aware of
corruption practices and believe that corruption is a widespread phenomenon from
government and civil servants, private business employees, local government, to the press/
reporters and media (Koniordos, 2018).
In addition to cultural factors, significant events in the Greek context was the mandatory
adoption of International Financial Reporting Standards (IFRS) on 1 January 2005, which
according to (Tsipouridou and Spathis, 2012, Earnings management and the role of auditors
in an unusual IFRS context: The case of Greece) designed and aimed to improve the quality
of financial reporting in Greece and according to (Dimitropoulos et al., 2013) contributed to
as follows:

Less earnings management;

More timely loss recognition; and

Greater value relevance of accounting figures.

Another important fact is that Greece offers whistleblower protection under the provisions
of Law N. 4254/2014 (85/7.4.2014) (Krambia-Kapardis and Papastergiou, 2016).
In PricewaterhouseCoopers (PwC, 2018) Global Economic Crime and Fraud Survey, “only
43% of organizations in Greece said they’d been a victim of fraud and economic crime” with
the tree most common types of fraud being Asset Misappropriation, Cybercrime and
consumer fraud (PwC, 2018). The report also shows that 45% of fraud was committed by
internal actors and the majority of fraud cases were discovered by corporate controls 55%,
30% by whistleblowers (tip-off internal or external) and 14% accidentally.
In the same report, the fraud triangle is presented with Greek insights for the incentives
to commit fraud in which 67% report opportunity 11% incentives and 11% rationalization.

Power Uncertainty Long-term

distance Individualism Masculinity avoidance orientation Indulgence vs
Elements PDI IDV MAS UAI LTO restraint IVR

Greece 60 35 57 100 45 50
Power distance Individualism Masculinity Uncertainty Long-term Indulgence vs
Table 1. PDI IDV MAS avoidance UAI orientation LTO Restraint IVR
Conservatism þ   þþ þ 
Borker’s expansion
Uniformity þ  ? þþ þ 
of Hofstede-Gray Professionalism  þþ ?   þ
relationships Secrecy þþ   þþ þ 
Similarly, (Krambia-Kapardis and Papastergiou, 2016) state that due to the dark figure of International
fraud and the low reporting of fraud incidence such crimes have low visibility. They also fraud triangle
point out that there is limited published work on fraud victimization in Greece and add that
a lack of visibility by the victim meaning that fewer cases are reported and even less are
prosecuted probably because Greek companies opt for measures like dealing with the
fraudster internally instead of reporting the case to the police.
The official Hellenic Police statistics indicate that the amount of fraud cases
(including counterfeit) reported to the authorities for the years 2012-2016 were 3.329
in 2012, 3.025 in 2013, 3.035 in 2014,3.596 in 2015 and 4.979 in 2016 (Hellenic Police,
2018).
In 2019, for the first time in Greece, the Greek state establishes a single and independent
authority the National Transparency Authority (NTA) which has also been designated as
the Hellenic Anti-Fraud Coordination Service (Transparcy International, 2020) The National
Transparency Authority with the Law 4622/2019, constituted the catalyst for a radical
organizational and operational modernization of key public Audit Bodies: Inspectors–
Controllers Body for Public Administration, General Inspector of Public Administration,
Inspectors Body for Health and Welfare Services, Inspectors Body for Public Works,
Inspectors-Controllers Body for Transport) and the General Secretariat of AntiCorruption
(National Transparency Authority, 2020).

Fraud research in Greece

There is limited research on Fraud in Greece and in general fraud-related issues are
typically under researched in the Greek Context. The number of studies that
examined fraud in Greece is limited and fraud has been examined from different
perspectives with fraud detection or falsified financial statements as a prevailing
theme among them (Zopounidis et al., 2000; Spathis, 2002; Kirkos et al., 2007;
Chimonaki et al., 2019).
The literature on the pressure to commit fraud is mainly focused on financial pressures
(Drogalas et al., 2017; Krambia-Kapardis and Papastergiou, 2016), these pressures comprise
the main etiology for fraud as companies “in their effort to survive resorted to falsification of
the financial statements, accounting tricks and various methods incompatible with the
principles methods” (Pazarskis et al., 2017). In Greece, falsified financial statements have
been associated with attempts by companies to reduce the level of taxation on profits
(Zopounidis et al., 2000).
In an organizational context, financial pressures seem to stem from management,
Baralexis (2004) finds that creative accounting or earnings management is practiced in
Greek companies and defines creative accounting as “the process of intentionally exploiting
or violating the GAAP or the law to present financial statements according to one’s
interests.” He also makes a distinction between large companies that overstate profits,
whereas small companies understate profits for tax reductions. Similarly, Curtis and
Thalassinos (2005) point out that Management exploits the quest of shareholders for higher
return on equity capital, by taking advantage of accounting rules gaps or violating them.
Repousis (2016) also finds that companies are likely to be manipulators of financial
statements.
Krambia-Kapardis and Papastergiou (2016) explore the typology of fraud in Greece
covering both the private and public sector during the years (2011–2014) and find the
following types of fraud: false financial reporting/accounting fraud; theft of data; corruption/
bribery; money laundering (ML); and theft of cash. They also associate the financial crisis in
Greece with fraud as the cause or pressure to commit fraud stating “As one would expect at
JMLC times of financial hardship, one is looking for easy access to cash.” In the pressure angle of
the fraud triangle, they also add that management motive stems from pressures to “window
dress their accounts” in an effort to increase capital and finances. Their finding seem to
be similar to Cressey’s hypothesis that a person becomes a “trust violator” because of a
non-sharable financial pressure. As for the opportunity to commit fraud Krambia-Kapardis
and Papastergiou (2016) find the following factors: weak internal controls, type of business
and collusion. They find weaknesses of IT security/access controls that tend to be evident
more in large companies in accounting, banking and insurance companies as opposed to
other industries.
For the Rationalization element of the fraud triangle Krambia-Kapardis and
Papastergiou (2016) state that the decision by companies to either dismissing quietly or
simply taking a disciplinary action against the fraudster, thus not reporting the matter to
the police, the management of the victimized company provides the fraudster with the
rationalization/justification that the crime committed is not a serious one and the sanction is
not a deterrent. They finally stress the role of adequate internal controls and a corporate
culture in the minimization and impact of fraud on the victims. Similarly, Drogalas et al.
(2017) explore the relationship between internal audit effectiveness, internal auditor’s
responsibility, training and fraud detection; thus they examine fraud within the context of
internal controls and find that audit effectiveness, auditor responsibility and auditor
training affect positively and significantly the detection of fraud. They suggest that
companies should have effective control systems as a measure to identify and limit
irregularities, hire well-trained, trusted and experienced auditors. Koutoupis et al. (2018) also
study the role of internal auditors and find that that “Internal Auditors limit their role in
verifying the compliance with the relevant laws and regulations” rather than play a
consulting role to improve the content and quality of Corporate Governance Statements
information. They also add that internal audit adds moderate value on Corporate
Governance Statements.
Drogalas et al. (2018) investigate tax ethics and evasion in Greece and find that Greeks
evade taxes not for “personal gains” but because of their beliefs and attitudes toward the
State that find it “incapable of proper allocation of public money and that the current
political and tax system is inefficient or corrupt.” Their findings could serve as an
explanation for the Rationalization element of the fraud triangle for the general Greek public
in terms of how they justify their actions to evade taxes due to the inefficient and corrupt
state.

Conclusion
This paper provides theoretical contributions to the fraud literature by introducing a
broader model framework that considers national factors that contribute to the etiology of
fraud occurrence. We highly recognize the theoretical insights provided by prominent
scholars in the field, as well as the interesting and highly constructive criticism it has
received so for. Even though the “FT” is not a general theory of crime (Huber, 2017) it
provides the foundation to examine the etiology of fraud and it is a useful framework for
external auditors, regulators, academics, business students, governmental employees and
managers in general.
Over the years the so called “Cressey’s FT” evolved expanded and incorporated useful
insights that help auditors to better understand fraud and its n dimensions. It is a fact that
the elements of the fraud triangle changed compared to the original Cressey’s hypothesis
and its importation to the “nascent field of fraud examination” Morales et al. (2014). The
current paper lends support to these evolutions and believes the new framework model
should be called “The international Fraud Triangle.” This model will help external auditors, International
regulators and academics in both the private and public sector in any country to understand fraud triangle
fraud as a socio-economic, as well as a political phenomenon.
Future researchers can develop testable hypotheses based on the proposed model to
examine the causal connections between the sociopolitical, economic, cultural and
organizational factors to fraud occurrence. Future research may also test other country level
indexes, such as governance/corruption/stability and how they related to culture elements
that affect financial crime and fraud occurrence. It would also be interesting to explore how
values and beliefs in countries were fraud and corruption are high affect tolerance levels for
fraud and fraudulent activities in general.

Notes
1. www.acfe.com/report-to-the-nations/2020/
2. Source: Black’s Law Dictionary, 5th ed., by Henry Campbell Black, West Publishing Co., St. Paul,
Minnesota, 1979.
3. 37 C.J.S. Fraud §1 Westlaw legal database accessed via Northeastern University on 23 January
2021.
4. International Standard on Auditing 240: The Auditors’ Responsibility Relating to Fraud in an
Audit of Financial statements. www.ifac.org/system/files/downloads/2008_Auditing_Handbook_
B035_ISA_240_Redrafted.pdf accessed on 2 January 2021.
5. AICPA Consideration of fraud in a financial statement audit. Statement on Auditing Standards
AU 240 accessed from www.aicpa.org/content/dam/aicpa/research/standards/auditattest/
downloadabledocuments/au-c-00240.pdf
6. see also ACFE Leadership: Dr Joseph T. Wells, certified fraud examiner (CFE), certified public
accountants (CPA), Association of Certified Fraud Examiners, www.acfe.com/bio-jwells.aspx
(Wells’ biography)
7. www.ifac.org/system/files/downloads/2008_Auditing_Handbook_B035_ISA_240_Redrafted.pdf
8. Jonathan Marks, CFE, CPA, certified information technology professional, Partner and Leader of
the Fraud, Ethics and Anti-Corruption Practice Crowe Horwath LLP.
9. USA v. Novartis Hellas, S.A.C.I, 2020 www.justice.gov/opa/pr/novartis-hellas-saci-and-alcon-pte-
ltd-agree-pay-over-233-million-combined-resolve-criminal
10. Basel AML is research-based index issued by a not-for-profit organization ranking countries
according to their risk of money laundering and terrorist financing (ML/TF).
11. The survey took place in Fall 2017 and became the very first WVS survey completed in Greece.
A sample if 1,200 respondents has been interviewed under the leadership of the WVS-7
Principal Investigator for Greece Professor Sokratis Koniordos. www.worldvaluessurvey.org/
WVSNewsShow.jsp?ID=388&ID=388

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Further reading
Archambeault, D.S. and Webber, S. (2018), “Fraud survival in nonprofit organizations: empirical
evidence”, Nonprofit Management and Leadership, Vol. 29 No. 1, pp. 29-46.
Cohen, L. and Felson, M. (1979), “Social change and crime rate trends: a routine activity approach.
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27 January 2021).
Ergin, E. and Erturan, I.E. (2019), “Fraud evasion triangle: why can fraud not be detected?”, Journal of
Accounting Finance and Auditing Studies (JAFAS), Vol. 5 No. 4, pp. 35-45, doi: 10.32602/
jafas.2019.36.
Sutherland, E.H. (1945), “Is ‘white-collar crime’ crime?”, American Sociological Review, Vol. 10 No. 2, International
pp. 132-139.
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Sutherland, E.H. (1983), White Collar Crime: The Uncut Version, Yale University Press, New Haven CT.
Sutherland, E.H. and Cressey, D.R. (1966), Principles of Criminology, Lippincott, Philadelphia.

Corresponding author
Jamel Azibi can be contacted at: jamel.azibi@fsjegj.rnu.tn

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