Like all working CPAs, I get the concept of the fraud triangle. Opportunity, motivation, and rationalization combine to create a ripe environment for fraud.
I have a vague realization we need to expand the discussion somehow. Why my discomfort?
Trying to reconcile one specific fraud to the fraud triangle
Matt Kelly has a first-hand report at Compliance Week on an acquaintance who was revealed as a fraudster: Psychology of the Fraudster, as Told From the Front Lines.
Mr. Kelly describes someone who was discovered by an investigation following a drunken incident at the corporate sales meeting. The conclusion was this really nice guy, pleasant, outgoing, and quite successful in the sales area had stolen about $180k over the course of a year through padded expense reports.
Mr. Kelly can’t fit that into the standard fraud triangle.
Likewise with the insider trading incident at KPMG.
I look at the allegations against Mr. Scott London in the criminal indictment and then look at what I know of the fraud triangle.
I can’t put them together.
If he’d bought a $3M or $5M home at the peak of the market, I could understand (don’t laugh, that would only be 2 or 3 times the guessed-at amount of his annual comp). But published reports state he lives in the same home he bought about the time he would have been promoted to partner. That puts his house at somewhere around one-third of his annual comp.
How could the regional audit PIC of a Big 4 firm in the second largest market in the US possibly develop a rationalization that the alleged insider trading was okay?
And don’t throw out that he’s a dummy. No matter what your thoughts are about the Big 4, you don’t get to partner without being really bright. And you have to be exquisitely smart to get to audit PIC of any office, let alone some place like the LA market, to say nothing of being the regional PIC. I knew a few of the partners while I worked at PMM. Everyone one of them was incredibly bright, savvy, and knowledgeable.
With the caliber of reporters working the story, I’m guessing that if there were serious money trouble, drugs, or a girlfriend, we would have heard some reports by now.
The whole greed angle just doesn’t work – the amounts alleged are well under $100k. We are talking an amount equal to several weeks comp.
So I’m left scratching my head trying to put the allegations into the framework of the fraud triangle. It doesn’t fit.
Back to Mr. Kelly’s article. He points toward new ideas in the works. Specifically expanding the fraud triangle into the fraud pentagon by adding arrogance and competence.
At this point, I just have questions that need research. Need to do some reading. All of us CPAs working audits probably need to do some more reading.
Oh, and I see you Certified Fraud Examiners and academics out there rolling your eyes at me. I know I’m just starting to think about what you’ve been studying for years. Please humor me. There’s probably 60,000 auditors (just a wild guess) in line right behind me that need to do some more learning too. Bear with us as we stretch our brains.