The proclamation that Australia’s current economic conditions are tough comes as a surprise to absolutely no one. It wasn’t so long ago that ‘unprecedented times’ was the unofficial banner of the acute COVID years. Recently, the term has taken on new life, this time as shorthand for the country’s economic environment.
Right now, much of the country is grappling with an inflation rebound; high interest rates; and cost of living pressures, the likes of which haven’t been seen for years.
Churned together, these factors can whip up a Goldilocks zone for occupational and financial fraud to thrive.
It goes without saying that economic pressure alone does not cause fraud. But it does intensify the conditions that make individuals more likely to commit it: greater financial motivation, more room for personal rationalisation, and weaker controls that create opportunity.
In forensic accounting, this trio of factors—motivation, rationalisation, and opportunity—are known as the fraud triangle. First developed from the work of criminologist Dr Donald Cressey in the 1950s, the fraud triangle is the thesis that for an individual to commit fraud, all three individual elements must be simultaneously present.
Motivation: when personal pressure builds
Motivation, motive, pressure—this point of the triangle can take a few different names, but what it ultimately refers to is the financial or emotional stress that pushes an individual towards fraud.
There’s no doubt that right now, more Australians are feeling the squeeze:
Simply, the pay packet isn’t going as far as it used to. The vast majority of people respond to that pressure in practical ways. They make lifestyle adjustments, they budget better, they may even pick up extra work. However, for some, the tightened grip of financial stress can be the straw that breaks the camel’s back, especially if their financial baseline was unstable to begin with.
Rationalisation: when dishonesty feels justified
The next point of the fraud triangle is rationalisation. This is a fraudster’s personal justification of their dishonesty. It’s the mental unlocking that leads individuals to the door of fraud, and enables them to feel justified in their actions once they’ve stepped through.
In tougher economic conditions, that mental unlocking can come a little easier than it did before.
As businesses take actions to weather the storm, employees are often the ones hit hardest by their decisions. Headcount may shrink while workloads rise. Processes may fall by the wayside while pay rises are put on hold.
Regardless of how commercially necessary these decisions may be, these types of shifts are often the catalyst for an employee to conduct their own, often unconscious, fairness assessment. And when an employee concludes that they are being treated unfairly—be it by the business they work for or the societal systems at large, that’s when the mental gymnastics of justifying deceit kicks off.
While rarely voiced, the internal rumblings of rationalisation can sound like:
Of course, there is no position that makes fraud justifiable. However, these notions show how people can reframe their behaviour in their own minds.
In essence, rationalisation allows people to cross the line much more liberally, because in their minds, they haven’t crossed it at all.
Opportunity: when weak controls open the door to risk
The final point of the fraud triangle is opportunity. For business owners, this is the one that matters most.
You cannot control an employee’s personal financial pressure or their perspective, but you can control whether your business’s processes are designed in such a way that makes fraud easy or difficult to commit under your roof.
Just as a challenging economic climate can fuel the fire of motivation and rationalisation, it can also amplify a business’s flaws in process and procedure, which creates the opportunity for an individual to enact and conceal fraudulent behaviour.
When businesses are under pressure, they shift gears from proactive to reactive. With that, the usual formalities of process are slowly shirked in favour of convenience. An approval that once required two people is waved through by one. A review that used to happen monthly is pushed to next quarter. A finance task that was once split between roles is handed to whoever has capacity.
These shifts rarely feel dangerous at first. On the contrary, they feel practical—even responsible—after all, what does a skipped approval matter when there are far bigger priorities at stake?
The risk is that small concessions rarely stay small. A skipped approval becomes a loose approval process, one delayed review becomes habitual, a blurred responsibility becomes a finance process no one fully owns nor checks.
That is where opportunity starts to open up.
These cracks can show up in all kinds of everyday processes, such as:
Easy to overlook but critical not to, gaps like these mean that your business has become easier to exploit.
This is why opportunity is the most important part of the fraud triangle for business owners to understand. Motivation and rationalisation are largely personal; they sit inside the individual. Opportunity, however, is either created or stifled by the business.
In other words, it’s the strongest lever you have to protect your business from fraud.
How business owners can close the opportunity gap
Closing the opportunity gap starts with strengthening your financial controls and staying close enough to know they are actually being followed.
At their simplest, financial controls are the measures that make sure money is being spent properly, records are accurate, and unusual activity is picked up early.
They do not need to be complicated. But they do need to be consistent. At a minimum, business owners should be asking themselves:
These are simple disciplines, but they are often the first to slip when businesses are under pressure, at the very moment they matter most.
Motivation and rationalisation sit with the individual, but whether they are granted the opportunity to act—that’s up to you.
If you are unsure whether your current controls are strong enough, we can help. Get in touch for a practical first conversation.