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Why do people commit fraud – fraud diamond

Wolfe and Hermanson first introduced the Fraud Diamond Theory in the CPA Journal in December 2004. They concentrated their research on what motivates people to violate trust in response to questions like "Why do people perpetrate fraud?" In their view, an offense can only occur when all four conditions are met: pressure, opportunity, rationalization, and capability.

According to Wolfe and Hermanson (2004), opportunity pushes someone into fraud, while pressure and motivation (i.e., incentives) push people in that direction. Capability, on the other hand, permits the individual to see the open doorway as an opportunity and seize it by passing through it again.

1. Capability

This is the circumstance in which a person possesses the required characteristics, abilities, or skills to conduct fraud. This is the point at which the fraudster identified the specific opportunity for fraud and had the means to make it happen. The supporting components of capability include position, intelligence, ego, coercion, deception, and stress. Due to the inability to carry it out or cover it up, not every person who has the motive, opportunity, and realization will be able to perpetrate fraud. When it comes to widespread or persistent deception, this component is very crucial.

2. Motive or Pressure

The term "perceived pressure" refers to factors that encourage unethical behavior. Every fraudster experiences some pressure to act unethically. Depending on the pressure, it may be financial or not. Pressure can be felt in many different ways, particularly when there is a non-shareable financial need. The most frequent reason for an entity to commit a bad deed is acknowledged to be financial pressure. More specifically, financial demands on the fraudster account for around 95% of all fraud cases.

3. Opportunity

The perception of opportunity is the third condition for fraud to take place. A person can commit organizational fraud when a control or governance system is ineffective and provides the opportunity. This is referred to as "internal control vulnerabilities" in the accounting industry. A perceived opportunity has a similar aspect to perceived pressure in that it is not necessary for the chance to also be actual. However, the perpetrator's perception and belief provide the opportunity. In general, the lower the risk of detection, the more likely fraud is to occur.

4. Rationalization

The FDT's fourth component is rationalization. It is stated that before acting unethically, the offender must develop certain morally acceptable concepts. The justifications and defenses used to distinguish immoral behavior from criminal activities are referred to as rationalization. A person is less likely to commit fraud if he/she is unable to defend the dishonest behavior. Other fraudsters justify their actions by saying things like, "I had to steal to provide for my family," and "some people did it, why not me?" Since it is hard to comprehend the mind of a fraud perpetrator, rationalization is tough to detect. Fraudsters have a certain mindset that enables them to defend or rationalize their fraudulent behavior.

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