GOOGLE BASED HOMEWORK - A DOUBLE EDGE SWORD

 
Why People Are Lured To Commit Fraud

 

Fraud is not something that happens by accident. People are often lured into committing it due to a mix of pressure, opportunity, and rationalization. These three factors work together to form what experts call the Fraud Triangle. Let’s break it down and connect it with real-life examples.

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🔺 The Fraud Triangle

1. Pressure (Need or Greed)

• Financial pressure: debt, lifestyle expenses, losses in business, medical bills.
• Greed: desire for luxury, status, or wealth beyond one’s means.
• Workplace pressure: meeting unrealistic targets, bonuses, or sales goals.

2. Opportunity

• Weak internal controls (no audits, no segregation of duties).
• Access to confidential data or funds without proper supervision.
• Trust-based systems where oversight is missing.

3. Rationalization

• People justify fraud by telling themselves things like:
• “I deserve this, I worked hard.”
• “I’ll pay it back later.”
• “The company won’t even notice.”
• “Everyone else is doing it.”

 🕵️ Examples of Why People Commit Fraud

1. Satyam Scam (India, 2009)

• What Happened: Founder Ramalinga Raju inflated profits by ₹7,000+ crore in company books.
• Why:
• Pressure: To maintain investor confidence and keep stock prices high.
• Opportunity: As the promoter, he had control over accounts and weak oversight.
• Rationalization: Believed he was protecting the company’s image and could “fix it later.”

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2. Enron Scandal (USA, 2001)

• What Happened: Top executives used accounting loopholes to hide debt and inflate revenue, causing one of the biggest corporate bankruptcies.
• Why:
• Pressure: To meet Wall Street expectations and show continuous growth.
• Opportunity: Complex financial structures and lack of strong regulation.
• Rationalization: Convinced themselves they were just being “innovative.”

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3. PNB-Nirav Modi Scam (India, 2018)

• What Happened: Nirav Modi & associates cheated Punjab National Bank using fake Letters of Undertaking (LoUs), causing losses of over ₹11,000 crore.
• Why:
• Pressure/Greed: Lavish lifestyle, global expansion dreams.
• Opportunity: Weak internal controls in PNB; misuse of SWIFT system without core banking checks.
• Rationalization: Thought he was too big/influential to get caught.

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4. Bernie Madoff Ponzi Scheme (USA, 2008)

• What Happened: Promised investors steady returns, but paid old investors using money from new ones. Losses: $65 billion.
• Why:
• Pressure: To keep reputation as a successful fund manager.
• Opportunity: Trusted by wealthy clients, no one questioned him for years.
• Rationalization: Told himself he was buying time until the market turned in his favour.

Other Reasons

• Addictions (gambling, drugs, shopping) creating urgent financial need.
• Sense of entitlement (feeling undervalued or underpaid).
• Lack of ethics or weak moral compass.
• Cultural or peer influence (if others around them cheat, it feels “normal”).
• Low risk of being caught (if detection systems are weak).

👉 In short: people commit fraud when motivation, opportunity, and rationalization come together.

 

📊 Fraud Triangle in Action

Case	Pressure	Opportunity	Rationalization
Satyam	Maintain growth & investor trust	Promoter control, weak oversight	“Protecting company’s image”
Enron	Meet Wall Street targets	Accounting loopholes	“It’s innovation, not fraud”
PNB–Nirav Modi	Fund lavish lifestyle & expansion	Loopholes in bank controls	“Too big to catch”
Madoff	Protect reputation	Blind investor trust	“Just buying time”

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🎯 Key Takeaway

Fraud happens when pressure + opportunity + rationalization come together. To prevent it, organizations must:

• Reduce pressure with fair targets and financial support.
• Close opportunities with strong internal controls and audits.
• Challenge rationalization by building an ethical culture.

Fraud is not just about money—it’s about human behaviour. The Fraud Triangle helps us understand why fraudsters act the way they do and how organizations can protect themselves.

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 📌 Lesson:

In every fraud, the Fraud Triangle (Pressure + Opportunity + Rationalization) is clearly visible.

That’s why auditors and forensic experts always check:

·        Where is the pressure?

·        What loopholes allow opportunity?

·        What excuses might the person give themselves?