Fraud Triangle Theory and Fraud Diamond Theory. Understanding the Convergent and Divergent For Future Research

Abstract

Many of the world's most prominent organizations have experienced large-scale frauds. These frauds have had disturbing effects on our world's economy in addition to contributing unnecessary suffering and increased unemployment for the low and middle class. With the aim of further understanding the fundamental motivations of fraud, this paper takes an in-depth look at the convergent and divergent of two classical fraud theories which are: (i) fraud triangle theory; and (ii) fraud diamond theory. This comparison is important to assist anti-graft bodies and organizations in formulating a practical strategy to prevent and investigate organizational frauds. The paper takes a conceptual approach by first examining the concept of fraud, then discussing the convergence of the two classical theories, and finally differentiating them. By doing so, the similarities and differences between them are highlighted and appreciated for fraud prevention purposes. The study uses secondary sources of information obtained from journal articles, textbooks and the internet. The discussion of the two theories contributes to the understanding of frauds especially by forensic accountants, auditors, fraud examiners and other anti-fraud bodies. The study also serves as guidance for further fraud related research. Keywords: Fraud; fraud diamond theory; fraud triangle theory; forensic accounting. 1.0Introduction In recent years, corporate financial accounting scandals no longer become unexpected news of the day. Cases such as Enron, WorldCom, Global Crossing and Tyco are among the most prominent ones which had suffered from the devastating impact of fraud. These costly scandals have increased global concerns about fraud, wiping out billions of dollars of shareholder value, and led to the erosion of investors and public confidence in the financial markets Many studies have discussed fraud-related issues and the general view is that fraud prevention should be the main focus. It is less expensive and more effective to prevent fraud from happening than to detect it after occurrence. Usually, by the time the fraud is discovered, the money is unrecoverable or the chance to recover the full amount of the lost is very slim. Furthermore, it is costly and time consuming to investigate frauds especially involving large-scale multinational operations. However, if the focus is on fraud prevention all the monetary losses, time and effort to reconstruct fraudulent transactions, track down the perpetrator, and reclaim missing funds can be saved. Thanasak (2013:1) states that before making any efforts to reduce fraud and manage the risks proactively, it is important for the business organizations to identify the factors leading to fraudulent behaviour by understanding who are the fraudsters, when and why frauds are committed. Various theories have attempted to explain the causes of fraud and the two most cited theories are the Fraud Triangle Theory (FTT) of Cressey (1950) and Fraud Diamond Theory (FDT) of Wolfe and Hermanson (2004). Both of them ide...

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