How Do Ethical People Commit Fraud?

Pleading ignorance, shifting blame and moral justification, among the six rationalizations identified by new Queen's School of Business research

KINGSTON, Ontario, March 1, 2011 /Canada NewsWire/ - Although most people would consider themselves ethical, it turns out that we are all very capable of committing fraud according to new research from Queen's School of Business. The three factors that must first be in place are opportunity, motivation and the ability to rationalize our actions.

"Not all fraudsters are bad people, but it's a slippery slope when any of the elements of the 'fraud triangle' are in place that may push them to do something they otherwise would not have," says Pamela Murphy, Professor of Accounting at Queen's School of Business. "Rationalization is perhaps the most insidious of the three factors as this enables someone to maintain their code of ethics and avoid the guilt or self-condemnation that would otherwise have been attributed to an act of fraud."

According to Murphy, there are six categories of rationalization that enable people to commit fraud while still maintaining their ethical principles.

...Pleading ignorance - Ignore or misconstrue the consequences of the act.
The fraudster's response: "I'm not hurting anyone"

...Shifting the blame - Diffuse or displace responsibility elsewhere to not hold yourself responsible.
Caught in the act: "Everybody does it"

...Advantageous comparison - By comparing the wrongful act against a much more flagrant act, the original act looks better.
Wrong doer's evaluation: "This is nothing compared to…"

...Moral justification - Reprehensible acts are re-construed as socially worthy or having a moral purpose.
A non-guilty plea: "I'm protecting the company, employees, my family…"

...Euphemistic labeling - Using convoluted verbiage to make a wrongful act sound better.
Spin master's buzz words: "I'm trying to level the playing field"

...Victim takes the fall - Finding faults with those impacted by the event or circumstance.
Denial of guilt: "They had it coming"

According to a recent report by PriceWaterhouse Coopers, one in three organizations was a victim of fraud within a one year period. This speaks to the need for more recognition of the various factors that can help to predict the likelihood of fraud.

"Armed with the knowledge of these psychological red flags we may be able to detect fraud earlier or potentially prevent all together," said Murphy. "Otherwise, a fraudster looks just the like the rest of us."

About Queen's School of Business
Queen's School of Business is one of the world's premier business schools—renowned for exceptional programs, outstanding faculty and research, and the quality of its graduates. Canadian executives regard Queen's as Canada's most innovative business school, offering students academic excellence and a superior overall experience. Queen's School of Business—where Canada's first Commerce program was launched in 1919—is located at Queen's University in Kingston, Ontario. The School also delivers programs at locations across Canada, as well in the U.S. and the Middle East and North Africa (MENA) region.