Factor 3 : The Fraud Triangle
In 1953 criminologist Donald Cressey published a model called the “ fraud triangle .” The fraud triangle outlines the three conditions that lead to higher instances of occupational fraud : motivation , opportunity and rationalization . This model is relevant in understanding why employees become motivated to steal from their employer and can assist with developing protection strategies . The fraud triangle basically asserts that employees need three things to happen before they would consider stealing from their employer :
• Motivation : pressure , financial problems or addiction .
• Opportunity : perceived opportunity to steal with a low amount of risk .
• Rationalization : in the employee ’ s mind committing the theft is acceptable .
Motivation and opportunity are often present in the casino industry . There ’ s not much we can do about an employee ’ s motivation except to pay and treat them fairly . However , as managers and business stakeholders we can play a major role in reducing an employee ’ s perceived opportunity to commit fraud by implementing and enforcing strict controls , processes and procedures .
In casinos , due to the large volume of cash transactions , we appropriately and wisely add extra layers of security in the form of surveillance and supervision . If employees perceive they will get caught and have to face consequences , they tend to drop the idea or at least think twice about it .
Even if an employee is motivated and has a perception there is an opportunity , they usually don ’ t steal from their employer . To become rogue , they need to progress into the final stage of the triangle — being able to rationalize committing a crime in their own mind .
The rationalization stage requires fraudsters to justify fraud as acceptable . Most people are not criminals . Employees who commit fraud do not see themselves as criminals . They can explain , at least to themselves , why they did what they did . Common excuses from employee thieves are “ they treated me wrong ,” “ upper management is doing it as well ,” “ our company makes so much money , they won ’ t miss it ” and “ there is no other way .”
In the casino industry the components of the fraud triangle are always present . There is a huge disparity between the “ haves ” of wealthy players and tailored-suit executives and the “ have-nots ” of the minimum wage-earning staff that serve them .
Fraud Triangle Turning into a Square
In 2004 , David T . Wolfe and Dana R . Hermanson presented a paper , The Fraud Diamond : Considering the Four Elements of Fraud , to The CPA Journal with a theory that the fraud triangle could be expanded into a fraud diamond . One other component could be added to the original three — capability . Capability is having the necessary traits and abilities to pull it off .
Wolfe and Hermanson had investigated fraud cases for 15 years and found that there were three key elements in the majority of cases involving large sums of money .
1 . Often a person ’ s position or function within an organization can allow them to create or exploit an opportunity for fraud not available to others .
2 . The right person for a fraud is smart enough to understand and exploit internal control weaknesses and to use position , function , or authorized access to the greatest advantage . Many of today ’ s largest frauds are committed by intelligent , experienced , creative people , with a solid grasp of company controls and vulnerabilities .
3 . The right person has a strong ego and great confidence that he will not be detected or the person believes that he could easily talk himself out of trouble if caught .
This is what we ’ re starting to see more of now — people in positions of authority with access to technology tools and knowledge that can facilitate scams easily and quickly .
I believe technological advancements and the continual evolution of the gaming floor will provide more opportunities for fraud and collusion between casino staff and outside agents . Smart guys will outnumber “ wise guys .” Bad actors on the inside , with privileged information into the inner workings of the operation , are gaining the authority and autonomy to access assets unchecked . Bad actors on the outside are gaining intelligence on employees through open-source investigation on the internet ( OSINT ) to connect , con , exploit and target aiders and abettors . The internet has become a sort of eHarmony hookup for bad actors .
In 2023 , the security vulnerabilities of casinos were exposed to the world through a series of high-profile ransomware attacks and cage heists that employed sophisticated social engineering techniques . All were facilitated by employees who were “ tricked ” by smart outsiders who had inside information and were able to target unsuspecting employees and exploit their lack of awareness and training .
Since Covid , I ’ ve noticed an increase in fraud around the world in all industries . I think about the fraud diamond and how employees have become more motivated and empowered to steal from their employers .
The events of last year somewhat shifted my thinking on the casino insider threat . Over the years I ’ ve viewed employee theft as malicious . A thief is a thief ! Now I see a digital world that enables fraud and enlists not only motivated criminals but unsuspecting accomplices with the push of a button .
Fighting Fraud with Fraud Fighters
To address the insider threat , casinos need a different approach . A more aggressive approach . This starts with forming a specialized team of fraud experts . Not part-timers from other asset protection departments who take on a hybrid role but actual full-time dedicated fraud experts .
The organizational chart is the window to the organization ’ s soul . A dedicated team on the org chart shows commitment to stakeholders of doing everything they can do to maximize profits and to reduce the risk of internal
24 Global Gaming Business FEBRUARY 2024