The criminologist Donald R. Cressey pulled over two decades of research together to define the “fraud triangle” in the 1970s. He argued that fraud, including occupational fraud, required three key elements: motivation, opportunity, and rationalization. This work has been adapted to define the theft triangle and more specifically the employee theft triangle.
The retail market has placed the spotlight on shrinkage in recent years. Understanding what drives employees to commit theft or fraud is important to reduce its occurrence. In fact, as we’ll show below, around 90% of all employees are capable of committing these crimes when the key ingredients are present.
Treating theft and fraud as things “bad employees” do will not solve the problem. You need to see these acts as the result of a properly motivated employee seeing the opportunity and being able to justify it.
What is the fraud triangle?
The fraud triangle diagram presents the three necessary conditions that lead people to commit fraud. Here’s a detailed graphic showing the fraud triangle and examples of each of the three elements:
We’ll dig a bit deeper into the meaning of opportunity, rationalization, and motivation below. Essentially, an opportunity to commit fraud has to arise, the employee must have some specific reason to want or need to commit the fraud, and they need to be able to justify the action.
The fourth side: the fraud diamon
Alexander Schuchter and Michael Levi recently reviewed works considering the fraud triangle. What they found is that most articles explicitly state that the fraudster required the “nerves and skills” to commit the crime.
In fact, David T. Wolfe and Dana R. Hermanson expanded the fraud triangle to include “capability” as a fourth necessary element. This is the fraud diamond.
Capability has two main parts:
- Traits: Greed, weakness of character, excessive pride, dishonesty, etc.
- Abilities: Knowledge of processes and controls, earning a position that facilitates the crime, intelligence, etc.
Here is a fraud diamond diagram:
David T. Wolfe and Dana R. Hermanson listed six main capabilities that fraudsters need:
- The person’s position or function within the organization offers the chance to create or exploit an opportunity not available to others.
- The person needs to be smart enough to understand and exploit internal control weaknesses to commit fraud.
- The person must have the ego or confidence to think they won’t get caught or can talk their way out of trouble if they are caught.
- A successful fraudster can convince others to commit or conceal their crime.
- A successful fraudster is good at lying and is willing to lie constantly.
- A successful fraudster has a very high tolerance for stress.
What is the theft triangle?
Since D.R. Cressey first defined the fraud triangle, it has been adapted in several ways. The first of these is to show that the same elements required for fraud are needed for a person to choose to steal.
In fact, fraud and theft have a lot of similarities. They both are criminal acts in which the person forcibly takes something without permission. While fraud is lying or cheating to get something, theft is the physical act of taking.
Here’s a simplified theft triangle diagram:
Here’s a simple example: An employee notices there are no cameras covering part of the stock room with high-value, easy-to-sell merchandise (opportunity). They are having trouble paying down a medical debt (motivation). They see their place of work as a faceless corporation that won’t miss a few hundred dollars worth of inventory (rationalization).
What is the employee theft triangle?
The employee theft triangle is specific to the work environment. While the theft triangle diagram doesn’t change, it’s important to think about the different types of employee theft separately from that of shoplifters, burglars, and other forms of external theft. Indeed, the specific motivations, opportunities, and justifications are very different.
The motivation of a shoplifter could be as simple as peer pressure for youth offenders, while that of a burglar might be drug or gambling addiction. Those of employees could be more empathetic—perhaps they are facing eviction, hunger, or bankruptcy.
While you might feel bad for the person in such circumstances, they in no way justify theft. In this situation, the best thing to do is internalize the 10-80-10 rule as a way to stop good people before they do bad things.
Why good employees fall into the triangle of theft: the 10-80-10 rule
The best way to prevent employee theft before it happens is to minimize the opportunities for theft. The 10-80-10 rule states that 10% of employees will never steal, 80% might if the right mix of opportunity, motivation, and rationalization developed, and 10% are actively looking for the opportunity to commit a crime.
(While we will use this common rule of thumb here, there have been a few critiques of these numbers. The most famous experiment on the subject comes from Paul Feldman who was written about in the first Freakonomics book. Paul sold bagels in NYC offices using an honor system. Overall, 87-92% of bagels were paid for. In this case, we can say that roughly 8% of people were dishonest and another 5% were conditionally dishonest while 85% were honest. That’s a much more optimistic view than the 10-80-10, but these were also upper middle class people dealing with a cheap office breakfast. They had the opportunity, but not the need or justification to steal.)
Reducing the opportunity for theft by making the odds of being caught much higher will deter the vast majority of employees from stealing. Take a look at our article on where to place cameras in a restaurant to make sure you are covering all the high-risk areas.
Using Solink’s video analytics platform drastically reduces the opportunity to steal by alerting you to suspicious behavior. Employees who believe they will get caught will not try to steal from you. You should sign up for a demo today to see how we can help you deal with the employee theft triangle.
According to the “10-80-10 Rule,” you can assume that:
10% of people will never commit fraud no matter the circumstances
80% of people might commit fraud given the right combination of pressure, opportunity, and rationalization
10% of people are actively looking for opportunities to commit fraud
Source: National Association of State Auditors, Comptrollers and Treasurers (NASACT)
The three sides of the theft triangle
The thrift triangle has the following three sides:
- Opportunity: A person needs to see the chance to steal something.
- Motivation (or Pressure/Need): A person needs to have a reason to commit the crime.
- Rationalization (or Justification): The would-be thief needs to believe that their actions can be morally defended.
a chance to commit fraud without being caught.
The opportunity to steal has two components. First, there needs to be some item worth stealing. Second, the employee needs to have the perception that they will probably not be caught.
A lack of cameras around valuable merchandise leads to an obvious opportunity. However, if staff members know that the cameras aren’t being actively monitored, the inventory isn’t being counted, or the cameras are low quality, they might still perceive that they won’t be caught. For a summary of all the different types of cameras you can use in your business, we recently described different types of cameras for a restaurant use case.
incentive or pressure to commit fraud.
Remember, 80% of employees aren’t actively looking for opportunities to commit a crime but might if the elements of the theft triangle line up. Here are some broad motivation groups for these employees:
- Unfortunate life events: Eviction, partner losing their job, or an unexpected medical bill
- Company resentment: Missed promotion or being denied a raise
- Addiction: Drug abuse or problem gambling
- Survival: Can’t pay for needed medicine or to put food on the table
Having resources in place for employees who are going through a tough time can reduce the chance that they are motivated to steal from the company. It can also position the company as a positive influence on their lives, which will also help with the next element.
reasoning used to justify the fraud
When faced with an opportunity to steal and the outside pressure to feel compelled to steal, 80% of employees still won’t unless they have the third element, rationalization. This is basically the moral justification to commit a crime against their employer.
Rationalizations fall into two main camps:
- The company is big and won’t notice, everybody does it, this is just a normal expense, etc.
- The company is evil, it doesn’t pay me enough, I deserve this, it’s part of my salary, etc.
They either see the company as not really hurting from theft, or they think it is justifiable to hurt the company because they deserve the added financial benefit.
It’s hard to convince some employees Point 1 is untrue, which is why reducing opportunities for theft as much as possible should be your main goal. Employees believing Point 2 can be reduced by generally being good and caring employers.
Steps you can take to collapse the employee theft triangle
The triangle of theft consists of opportunity, motivation, and justification. You can reduce the odds of employees getting caught in this theft triangle by targeting each side of the triangle separately. You should also keep in mind the psychology of the 10-80-10 rule. Let’s look at the second part first.
Prevention by understanding the 10-80-10 rule
Before you even hire someone, you should conduct background checks to weed out the 10% of employees who are going to actively look for ways to cheat and steal from you.
Employers know that most business theft today is performed by insiders. A background check can help employers to make intelligent and informed hiring decisions to help reduce their risk of theft.
Removing the opportunities for employees to steal from their work is the easiest way to reduce internal theft. Here are some suggestions:
- Install a video surveillance system. This is the best visible deterrent you can have.
- Sign up for a video analytics monitoring service. Solink alerts you to suspicious activity and eliminates the need to watch all of the video. If employees know that their activities will actually be seen by management, then they will take the video cameras more seriously.
- Use Solink to alert you when there are cash refunds, high discount usage, and other suspicious transactions that have a high chance of being fraudulent.
- Enforce a zero tolerance policy for internal theft. Make the punishments known, and support the policy with signage in high-traffic areas. If you are unsure how to speak to employees about theft, read our how to guide.
- Have an anonymous system in place for employees to inform management about employee theft.
- Perform thorough and regular inventories.
- Organize inventory so that small, expensive items are not as easily accessible.
Employees can be motivated by unfortunate circumstances at home or grievances at work. Here are some steps you can take to reduce the motivation of employees to commit theft:
- Recognize good employees with financial and non-financial benefits. Sometimes simply mentioning the names of employees having a good week in meetings can give them a sense of appreciation.
- Have employee services available to help when things are not going well at home. Mental health services, financial coaching, and other outreach programs will help employees see other avenues of solving problems than stealing from work. It’ll also reduce employee rationalizations based on seeing the company as uncaring.
Rationalization of theft comes in many forms. Here are some suggestions for stopping all of them:
- Show the face of the organization. If you are a franchise owner, put up a family portrait in the back room so employees understand they are stealing from your family and not a faceless corporation.
- Have signage that explains shrinkage and spoilage so employees know taking home expiring products is still theft (and why).
- Set high moral standards for management. Lower-level employees are more likely to be honest if they feel management is as well.
- Have a positive, team-oriented work environment where employees are valued and happy.
- For time theft specifically, inform employees that this is also theft and explain why. Many employees might not appreciate that a few extra minutes in the break room is even a form of theft.
Solink knocks down the theft triangle
The theft triangle diagram explains the psychology behind employee theft and fraud. While 10% of employees are actively looking for opportunities to steal from you, another 80%, who are largely decent people, might if the opportunity arise, they are properly motivated, and they can justify their behavior.
The easiest way to protect yourself, as well as these employees from doing something they’ll regret, is to eliminate the opportunity for theft.
Solink provides video analytics to your company so employees will perceive the threat of being caught as likely. Sign up for a Solink demo today to see how we help improve your bottom line by reducing shrink.