Examining The Fraud Triangle

Federal healthcare fraud recoveries totaled upwards of $2.3B in the 2018 fiscal year. This staggering sum is proof enough that healthcare fraud is here to stay as an unfortunate reality of the industry. Providers, patients, and insurers alike have all been complicit in various scams and schemes – which brings to mind the question: why do people commit fraud?

The answer isn’t always greed.

American Sociologist Dr. Donald Cressey developed a theory on factors taken into consideration when one decides to commit this white-collar crime. The three contributors to this thought process are: rationalization, opportunity, and pressure/motivation. Together these concepts form what is commonly referred to as the fraud triangle.

As a general rule of thumb, all of these factors must be present for fraud to occur. While identifying each of these factors in an individual fraudster’s actions may be difficult, it can be an incredible tool in the future prevention of loss. Understanding the psyche of offenders is an incredibly useful tool in developing strategies to thwart fraud before it occurs in future cases.

Below, we’ll explore some examples of each apex of the fraud triangle.

• Pressure/Motivation: When considering a fraudster’s pressure or motivation, it is important to remember that oftentimes this pressure is perceived, not necessarily a reality for external parties. Greed may manifest into a compulsive need to acquire funds; becoming a high-pressure situation for the fraudster, but simply a character flaw for those observing. Another example of this could be seen in situations in which an individual becomes sick and does not have the funds to pay for live-saving medical treatment. The looming threat becomes a source of immeasurable pressure that could be a catalyst to fraud.
• Opportunity: Once their motivations have been realized, fraudsters will need the opportunity to commit fraud. Opportunity can best be defined as the environment or circumstance that most easily facilitates fraud to be committed. This often presents itself as an opportunity in which supervision is minimum, as are the chances of getting caught. Some examples of ample opportunities are: ineffective internal controls, lack of policy/procedure, unmonitored access to assets or information, and a general lack of oversight.
• Rationalization: This is much more abstract concept, though it remains an integral component in the fraudster’s workflow. Rationalization is more overtly present in the thought processes of rookie criminal or the occasional thief. Rationalization may be the first cog in the fraud machine, as the individual may need to justify their impending actions to themselves before taking further action. An example of this could be in a situation where a doctor commits healthcare fraud in order to recoup additional funds to pay for their spouse’s cancer treatment. They would rationalize their behavior by insisting that the money will make its way back into the healthcare economy, thus minimizing the impact of their actions.

Many organizations have performed in-depth studies on each angle of the fraud triangle, as well as their implications in order to create an effective risk management program. This proactive approach to fighting fraud is still in development, but is very much needed to supplement the industry’s tendency to operate reactively.

Catch up on our exclusive Fraud Spotlight series, articles written by a retired OIG Agent exploring the most topical issues in fraud, waste, and abuse. Also be sure to follow our Podcast to learn more about healthcare’s hottest issues.