Fraud Theory

For your information, there are so many theories about fraud. It can be Fraud Triangle Theory, Fraud Diamond Theory, Fraud Pentagon Theory, Fraud Scale Theory or White Collar Crime Theory. In this occasion, I would like to explain you about those fraud theories.

Fraud Triangle Theory

There are three components that encouraging this fraud happened. They are pressure, opportunity and rationalization.

Pressure is an incentive that caused someone doing fraud. Basically, factors that drives someone doing fraud is about necessity and financial factors. Such as debt, luxury lifestyle, etc.

Opportunity is opportunities that caused fraud occurred. Usually occurred because of low internal control, less control and abuse of authority. Among the three factors of fraud triangle theory, opportunity is most likely to be minimized by applying process, procedures, and control.

Rationalization is the most important component of fraud occurrence, where the person who doing fraud to justify his actions. For example: beatify his family.

Fraud Diamond Theory

Fraud diamond theory is the development theory of fraud triangle theory. The three components in fraud triangle theory considered insufficient to detect fraud in organization, then this theory was born. There is one additional component to consider, namely individual capability. Individual capability is one's personal characteristics and abilities that have a big role which allows it to perform an act of fraud. This theory concluded reasons of someone doing fraud because there's an opportunity, pressure, and rationalization where the three reasons mentioned happen when someone has ability (capability). The Fraud Diamond is the reason for a person to commit fraud against the financial statements (Financial Statement).

Fraud Scale Theory
There are three components involved in this theory.
1. Situational Pressure
2. Opportunities to Commit
3. Personal Integrity

All components are scaled from High to Low. Situational Pressure and Opportunity to Commit is directly proportionate to Fraud, where Personal Integrity is inversely proportionate to Fraud. When situational pressures and perceived opportunities are high and personal integrity is low. Occupational fraud is more likely to occur than when the opposite is true.

White Collar Crime Theory
White collar crime theory is a crime committed by a person of respectability and high social status in the course of his occupation, white collar criminals tend to middle and upper-middle-class and because of  a class bias in the criminal justice system, their crimes are generally viewed as less serious and less deserving of punishment. Typically white collar crimes could possibly include bank fraud, bribery, etc. There are three key concepts of white collar crime:
1. Occurs in a legitimate occupational context
2. Motivated by the objective of economic gain or occupational success
3. Not characterized by direct, intentional violence.


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