Metts 2023 From Fraudsters To Scammers And Cyber Villains Tech Savvy Criminals Are Out To

Summary

Journal article by Stephanie Metts and Martin S. Bressler of Southeastern Oklahoma State University, published in the Journal of Accounting and Finance, Vol. 23(4), 2023. It reviews current fraud activity against businesses, including cyber crime, cryptocurrency fraud and fraud in COVID relief programs, using the Fraud Triangle of opportunity, incentive and rationalization. The authors cite reported estimates of losses from the Paycheck Protection Program, unemployment relief and Economic Injury Disaster Loans, including $78.1 billion in potentially fraudulent loans identified by the SBA inspector general. They present a study using the Traits of Sympathy survey on whether rationalization and sympathy relate to a decision to commit fraud, and offer recommendations.

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From Fraudsters to Scammers and Cyber-Villains, Tech-Savvy Criminals Are
Out to Steal Your Money

Stephanie Metts
Southeastern Oklahoma State University

Martin S. Bressler
Southeastern Oklahoma State University

Today, more than ever before, criminals are out to steal from your business. However, today, criminals not
only use organized shoplifting gangs and engage in armed robberies, but they now also use computers and
the internet. Bernie Madoff and Sam Bankman-Fried have joined the lengthy list of well-known criminals
before Charles Ponzi.

The Fraud Triangle (Cressey, 1973) is based upon Opportunity, Incentive, and Rationalization. The
COVID-19 pandemic created a perfect storm of opportunity for would-be scammers. The federal
government fueled opportunity with $800 billion in COVID relief funding for the Paycheck Protection
Program and up to $400 billion for COVID unemployment relief.

According to the Association of Certified Fraud Examiners (ACFE) small businesses are often targeted as
they tend to have fewer safeguards in place to prevent fraud. The ACFE reports that the average loss for a
small business fraud is $100,000 and an average of five percent of annual revenue.

In this paper, the authors provide an overview of current fraud activities and a study of the Traits of
Sympathy survey to help examine whether a relationship exists between one’s rationalization and sympathy
in their decision to commit fraud in the pre-fraud state. We present research findings and offer
recommendations.

Keywords: financial crime, fraud, cyber-criminals, cryptocurrency, COVID fraud

INTRODUCTION

The Opportunity of a Lifetime
According to the federal official in charge of COVID relief, the government structured the Payroll
Protection Program and other COVID relief programs so that they were “an invitation” to fraudsters.
Experts consider this theft to be as much as $80 billion — or about 10 percent — of the $800 billion handed
out in a Covid relief plan known as the Paycheck Protection Program, or PPP. That’s in addition to the $90
billion to $400 billion believed to have been stolen from the $900 billion Covid unemployment relief

92 Journal of Accounting and Finance Vol. 23(4) 2023
program — at least half taken by international fraudsters — and another $80 billion potentially stolen from
a separate Covid disaster relief program.
Justice Department Inspector General Michael Horowitz, who oversees Covid relief spending, told
“NBC Nightly News” anchor Lester Holt in an exclusive interview that the government designed Covid
relief programs to make them ripe for plunder. The criminal methodology varied depending on the program.
Both individual criminals and organized crime gangs used stolen identities to swindle Covid unemployment
relief by claiming jobless benefits from state workforce agencies disbursing federal funds. According to
Horowitz, each stolen identity could be valued at up to $30,000 in benefits.
But theft through the Paycheck Protection Program (PPP) worked differently — and could be far more
lucrative. The PPP program permitted financial institutions and banks to provide government-funded loans
to businesses. These PPP loans would be forgiven on the condition the companies used the loan money for
business expenses. Nearly ten million such loans have already been forgiven. Records show that most of
these loans that turned into grants were for millions of dollars.
Economic Injury Disaster Loans are another SBA program designed to assist small business owners
when a disaster occurs. The inspector general of the Small Business Administration (SBA) has already
identified $78.1 billion in potentially fraudulent loans, although the Secret Service estimates there are $100
billion. The Pandemic Response Accountability Committee is retaining data scientists using artificial
intelligence to analyze 150 million records in search of fraud patterns. In one instance, they found the same
phone number for a Houston gas station used on 150 loan applications. The committee then sends these
leads to federal agents who follow up investigating.
Congressional investigators report investigating several lenders and other service providers which
processed $4.5 billion worth of loan applications and boasted that a small business could get loan approval
in five minutes. Other government agencies are also actively involved in investigating and prosecuting
Covid-related fraud.
According to the Secret Service, the agency has confiscated more than $1.2 billion while investigating
unemployment insurance and loan frauds. By collaborating with financial partners and state governments
to reverse financial transactions, they have also returned more than $2.3 billion of funds obtained
fraudulently. The Secret Service also reports more than nine hundred active criminal investigations around
pandemic fraud. The Secret Service investigation includes cases in all fifty states, and so far, one hundred
persons have been arrested.
Last week the Justice Department reported that its fraud division had already prosecuted more than 150
defendants in ninety-five criminal cases. They also seized $75 million in cash proceeds fraudulently
obtained through the Paycheck Protection Program and various real estate property and expensive luxury
goods purchased with the fraudulently obtained funds.

Stealing Money From the Cloud
Financial cryptocurrency fraud is one of the newer and fastest-growing areas of financial fraud.
Between October 2020 and March 2021, the Federal Trade Commission (FTC) received 7,000 crypto theft
reports of, with a combined value of more than $80 million. This represents a 1200% increase in the number
of cases and a 1,000% increase in the amount of cash compared to the same period the previous year (Tepper
& Curry, 2022). In 2016, Americans reported 340 Bitcoin crimes. More recently, in 2020, Americans
reported 82,135 cryptocurrency crimes involving Bitcoin, Ethereum, and other digital currencies--- an
increase of 24,000%!
Bitcoin fraud differs from other types of fraud in that the strengths of cryptocurrency are curved back
against the victims. “Bitcoin-related scams track with other criminal exploits online until you try to recover
your assets,” according to cybersecurity expert Adam Levin. “Cryptocurrency is designed to be hard to
track and even more difficult to recapture. Once transferred, it’s gone, with a few very high-level
exceptions.” (Tepper & Curry, 2022).
The United States is not the only target in this high-stakes fraud. Law enforcement detected similar
crime patterns elsewhere around the world. For example, in 2020, Australians reported 9,689 crypto crimes

Journal of Accounting and Finance Vol. 23(4) 2023 93
compared to none reported in 2016. Last year (2020), in the United Kingdom, victims reported 8,801 crypto-
related crimes, a substantial increase from 704 in 2016.
Sam Bankman-Fried was one of the wealthiest people in cryptocurrency, thanks to his FTX exchange
and Alameda Research trading firm, before his financial empire came crashing down in November 2022.
By early 2022, investors placed the value of FTX and its U.S. operations at $40 billion. Most of his wealth,
estimated at $26.5 billion, was based upon his (half) ownership of FTX and a share of FTT tokens.
Bankman-Fried, the son of Stanford law professors, graduated from the Massachusetts Institute of
Technology and then worked for the prestigious trading firm Jane Street Capital. Roomy Khan, a Forbes
magazine contributing writer, referred to Bankman-Fried as “The New Face of Fraud- Marquee Education
and Privileged Access” (Forbes, February 6, 2023). Now,
Sam Bankman-Fried, CEO of FTX, is accused of swindling investors of $8 billion. In another example
of crypto fraud, Homero Joshua Garza’s virtual currency fraud Pay Coin victims lost more than $9 million
(Cryptocurrency Fraudster Sentenced, February 11, 2019).

DISCUSSION

Fraud is an inherent risk in any organization. Fraud can impact an establishment regardless of the size,
type, or life cycle. Therefore, fraud is not discriminatory and can allow small, medium, large, public,
private, for-profit, not-for-profit, newly formed, or mature establishments to become victims of fraud.
Fraud, in one form, is in the news daily (Kreuter, 2017). Relatedly, anti-professionals see an increase in the
number of frauds committed and exposed during times of economic distress such as the 2008 recession in
the United States, and, therefore, anticipate the same with the current 2020 Global Coronavirus Pandemic
(Dorris, 2020; Ross & Armstrong, 2016).
According to the Association of Certified Fraud Examiners’ (ACFE) Report to the Nations (2020),
based on their 2019 Global Fraud Survey results, business establishments lose about five percent of their
revenues to fraud each year - exceeding $4.5 trillion worldwide. While no organization is immune to fraud,
but smaller establishments often have an increased risk and greater impact when fraud occurs, given their
size and limited resources available to combat it. Small businesses, those with fewer than one hundred
employees, consistently rank highest in fraud frequency (ACFE, 2016).
Fraud originates at the individual level (Parker et al., 2020). Fraud is the outcome of an intricate
combination of circumstance and human motivation, with human behavior being the ultimate element in
deciding to partake in the act (Price-Waterhouse Coopers, 2018). Different from unintentional errors, fraud
is a form of deception that can be committed against an organization (e.g., employee fraud) or committed
on behalf of an organization (e.g., Financial Statement Fraud) (Albrecht et al., 2016).
There are many distinct types of fraud and just as many ways to commit it. However, regardless of the
type and method, fraud negatively impacts every organization it infiltrates. In addition to monetary losses,
fraud impacts other areas, including employee morale, retention, and business reputation and relations
(Crumbley et al., 2013).
Cressey’s Fraud Triangle Theory (FT, see Figure 1) depicted three elements that must be present for
fraud to be committed. These elements included opportunity, pressure, and rationalization (See Figure 1).
Responsibility for the opportunity element lies solely with the establishment (Kramer, 2015) in ensuring
sufficient internal controls are in place to avoid giving individuals the opportunity to commit fraud. While
organizations have no control over the rationalization element, they may share responsibility for the
pressure element (Peters & Maniam, 2016), depending upon the circumstances surrounding the fraud.
A multitude of studies have been conducted regarding the pressure (motivating) element, and
circumstances enabling fraud to occur in organizations, (Albrecht et al., 2015; Fitri et al., 2019; Kirsch,
2018; Kramer, 2015; Peters & Maniam, 2016), fraudster characteristics (Bonny et al., 2015; Cant et al.,
2013; Kennedy et al., 2016; Peters & Maniam, 2016; Schuchter & Levi, 2016), and the impact fraud can
have on an entity and its related stakeholders et al., 2017; Peters & Maniam, 2016; Trompeter et al., 2014).
Due to the detrimental impact fraud can have on organizations, individuals, and society, in general, in both
monetary and non-monetary aspects, more research is needed based on the different elements that occur in

94 Journal of Accounting and Finance Vol. 23(4) 2023
the pre-fraud state, which is the time before the fraud occurs. This is the pre-violation state when the
individual contemplates committing fraud while considering the associated risks and benefits.

FIGURE 1

Source: Cressey, D. R. (1973). “Other people’s money: A study in the social psychology of embezzlement.”
(“Other People’s Money: A Study in the Social Psychology of Embezzlement ...”) The Free Press

This distinction is important because the focus should be on proactive measures to stop fraud from
occurring rather than reactive measures after the fraud has occurred. The more we can learn about what
occurs in the pre-fraud state, the better prepared organizations and practitioners can implement measures to
stop the fraud. Researchers have examined the role of corporate ethics in the pre-fraud state (Mackevicius
& Giriunas, 2013; Mugellin et al., 2017; Peters & Maniam, 2016; Trompeter et al., 2014), offender
characteristics, including age and gender differences (Bonny et al., 2015; Cant et al., 2013; Kennedy, 2016b;
Mackevicius & Giriunas, 2013; Omar et al., 2016; Schuchter & Levi, 2016), and the behavioral warning
signs offenders have before committing the act (Klein, 2015). For instance, Bonny et al. (2015) examined
the gender characteristics of occupational fraud in various industries (banking, retail, manufacturing,
telecommunications, and transportation logistics). The authors noted females (2.5 to 1) in the banking
industry were discovered to have committed more frequent frauds with smaller monetary losses, while
males (4 to 1) committed longer durational frauds, which unsurprisingly resulted in larger monetary losses.
While there were no notable differences in offender genders in the retail and transportation logistics
industry, Bonny et al. discovered in the manufacturing and telecommunications industries that male
offenders significantly outnumbered females, which the authors noted was because these tend to be male-
dominated. Prior research showed that rationalizations for committing fraud included entitlement due to
being underpaid, unacceptable working conditions or hours, unawareness that the behavior was wrong, or
rationalizing that the money taken was just a loan (Kramer, 2015).
Rationalization has also been found to have a partial mediating effect on the acceptance of fraud when
viewed as a justification mechanism in the unfairness and inequity perception and attitude toward fraud
(Zourrig & Park, 2019) and a significant impact on triggering fraudulent behavior among individuals

Journal of Accounting and Finance Vol. 23(4) 2023 95
serving prison time for committing fraud (Syofyan et al., 2019). An individual’s four rationalization
processes have been revealed to be a motivating factor in whistleblowing intentions with the decision on
whether to report or not report the wrongdoings based on whether doing so would help those victimized by
the wrongdoings (Latan et al., 2019). In a study of public procurement fraud in Indonesia, negative affect
was found to mediate the relationship between fraud behavior and rationalization as individuals with high
pressure and high opportunity to commit fraud experienced higher negative affect and engaged in
rationalization, especially the ‘displace responsibility’ category of rationalization to commit fraud
(Rustiarini et al., 2019). An individual’s ability to rationalize their behavior in the pre-fraud state is
concerning.
According to Wells (2018), given an opportunity, an estimated 80 percent of people would commit
fraud. Therefore, if a human element is present, there will always be a risk of fraud. Thus, there is an
increased need to expand fraud awareness for practitioners, organizations, and researchers alike. For the
more known about the root causes of fraud, especially in the pre-fraud state, the better-prepared
establishments can combat fraud. Trompeter et al. (2014) maintained that fraud awareness can be brought
about by further understanding the elements that help establish the foundations for fraud. With further
insights into the fraud phenomenon, fraud prevention and detection controls can be implemented to help
organizations reduce the risk of fraud infiltrating their establishments (Trompeter et al., 2014).
However, to implement effective prevention and detection controls, professionals must understand why
and how perpetrators commit fraud (Ozili, 2015). Still, much about why and how individuals decide to act
unethically or fraudulently remains a mystery (Harrison et al., 2018). 5 While there have been multiple
studies regarding distinct aspects of fraud, the rationalization element is still the least understood and the
least researched (Trompeter et al., 2014). The rationalization element focuses on the behavioral aspects
associated with one’s propensity to commit unethical acts and is the most overlooked aspect (Parker et al.,
2020).
Existing literature offers little knowledge about whether an individual’s ability to rationalize
committing fraud is related to their level of sympathy towards others. Therefore, this study aims to further
examine the rationalization element of the FT Theory in the pre-fraud state to determine whether an
individual’s level of sympathy impacts their ability to rationalize committing fraud. Statement of the
Problem The problem to be addressed through this study was fraud’s epidemic status in organizations
around the world (Price-Waterhouse Coopers (2018) to determine whether a relationship exists between an
individual’s level of sympathy towards others (Lee, 2009; Wall, 2015), and their rationalization ability with
their behavioral intentions to partake in committing fraudulent acts in the pre-fraud state (Kramer, 2015;
Nugrapha, & Susanto, 2018; Peters & Maniam, 2016; Trompeter et al., 2014).
Fraud is costly in both monetary and non-monetary aspects (ACFE, 2020; Crumbley et al., 2013). Given
a perceived opportunity and pressure, 80% of people will rationalize committing fraud (Wells, 2018) in
what is considered the pre-fraud state (Trompeter et al., 2014). Organizations control the opportunity
element, while the pressure and rationalization elements originate with the individual contemplating fraud
(Kramer, 2015). The rationalization element is the least understood and the least researched (Trompeter et
al., 2014). Why and how people act unethically remains a mystery (Harrison et al., 2018). 6 The existing
literature offered little knowledge of whether one’s level of sympathy impacts their ability to rationalize
committing fraud.
Due to the detrimental impact fraud can have on organizations, the further understanding was needed
concerning whether sympathy (Lee, 2009; Wall, 2015) impacts the rationalization element in one’s decision
to commit fraud (Kramer, 2015; Nugrapha, & Susanto, 2018; Peters & Maniam, 2016; Trompeter et al.,
2014). In understanding who is more likely to rationalize fraud, the attention can be turned to internal and
external forces facilitating the rationalization (Schnatterly et al., 2018). Without this information,
organizations could not effectively assess fraud risk nor identify the proper fraud prevention and detection
measures to reduce the risk. Using Harrison’s (2018) fraud scenario survey in conjunction with Lee’s (2009)
Traits of Sympathy survey, the relationship, if any, between one’s traits of sympathy and their ability to
rationalize committing fraud was examined.

96 Journal of Accounting and Finance Vol. 23(4) 2023
This quantitative study aimed to examine whether there is a relationship between one’s traits of
sympathy and rationalization ability with their behavioral intentions to commit fraudulent acts in the pre-
fraud state, and whether interactions exist between gender and age, and one’s rationalization and traits of
sympathy. By better understanding whether such a relationship or interaction exists, organizations can better
focus on implementing fraud prevention and detection controls (Trompeter et al., 2014). A cross-sectional,
comparative research design was used to examine the independent variables – level of sympathy and
rationalization ability, and their effect on the study’s dependent variable – the participants’ behavioral
intentions to commit fraud. Cressey’s 1973 Classic FT Theory explains the elements involved in the pre-
fraud state and was used as the guiding theory behind Murphy and Dacin’s 7 (2011) Psychological Pathways
to Fraud Model in using Harrison’s (2018) fraud scenario survey and Lee’s (2009) Traits of Sympathy
survey to help examine whether a relationship exists between one’s rationalization and sympathy in their
decision to commit fraud in the pre-fraud state.
Using a convenience sampling method, this study focused on undergraduate and graduate students
enrolled at a regional university in the South. According to the G*Power 3 software (2020), the sample size
needed to detect a medium effect size of r = 0.3 (Coffey, 2010) at the research standard alpha level of .05
and power level of .80 (Piasta, & Justice, 2010) for a two-way MANOVA and Linear Multiple Regression
was 36 participants. The G*Power 3 analysis for these statistical tests is shown in Figure 1. Both Harrison’s
(2018) fraud scenario survey and Lee’s (2009) Traits of Sympathy survey were given to the students to
obtain age and gender information and to assess their traits of sympathy and rationalization ability in making
their decision to commit fraud. The IBM Statistical Package for the Social Sciences (SPSS) software,
version 27, was utilized to analyze the data collected in the study.
At this stage in the research, the goal was to determine if one’s level of sympathy impacts their
rationalization ability in deciding to partake in fraud. Conceptual Framework Murphy and Dacin’s (2011)
Psychological Pathways to Fraud Model based on Donald Cressey’s 1973 Classic FT Theory was used as
the conceptual framework for this study. The model depicts that if an individual is not already predisposed
to committing fraud, once a perceived opportunity and a perceived pressure are believed to exist, the
individual will begin the rationalization process in deciding to commit or not commit the act (Murphy &
Dacin, 2011).
The Classic FT theory illustrates three essential elements of fraud: opportunity, pressure, and
rationalization, all of which must be present for an individual to be able to commit fraud. However, the
three elements must only be perceived as real for an individual to consider committing a fraudulent act
(Albrecht et al., 2015). The perceived notion of opportunity + pressure + rationalization = an increased risk
for fraud. Hence, it was reasonable to presume that if just one element is eliminated from the equation, the
risk for fraud should decline considerably.
The FT Theory elements of opportunity, pressure, and rationalization are factors in an individual’s
decision to participate in committing fraudulent acts. As mentioned, these elements only need to be
perceived as real for a person to consider committing the activity (Albrecht et al., 2015). This perception of
realness differs for everyone, as a perceived pressure significant enough for one individual to commit fraud
might not be significant enough for another to do the same (Kirsch, 2018). Control of the opportunity
element lies solely with the organization, as absent an opportunity, the fraud cannot be committed (Kramer,
2015). While the opportunity element lies solely with an establishment, the element can be hard to
eliminate, especially for small businesses with limited monetary and personnel resources. The pressure
element is the triggering factor that initiates an individual to consider committing fraudulent acts (Fitri et
al., 2019). Depending upon the circumstances, control of the pressure element can be shared by the
organization and the individual contemplating committing fraud (Peters & Maniam, 2016). Establishments
can help reduce pressure by paying their employees’ fair wages, providing decent medical benefits, and
providing safe and good working conditions (Kramer, 2015). While the opportunity element lies solely with
the organization, and the pressure element can often be shared by both the organization and an individual,
the rationalization element lies solely with the individual as the ability to rationalize the decision to commit
fraud is unseen, and thus, unobservable behavior.

Journal of Accounting and Finance Vol. 23(4) 2023 97
Rationalization Element
Rationalization is the process in which a fraudster attempts to justify his or her fraudulent behavior
(Murphy & Free, 2016) by making excuses for the behavior (Fitri et al., 2019). As an estimated 80 percent
of people would commit fraud, given an opportunity (Wells, 2018), likely, even the most honest individual
can easily rationalize partaking in fraud, given a perceived opportunity and pressure. If an individual is not
already predisposed to committing fraud, once this perceived opportunity and pressure elements are
believed to exist, the individual begins the rationalization process for committing the act (Murphy & Dacin,
2011; Peters & Manian, 2016).
The methodology proposed for this study was a quantitative design. A quantitative design was
applicable to this study in allowing for the independent variables (i.e., age and gender) to be quantifiably
measured (Mertens, 2015). To help address the research questions and evaluate their corresponding
hypotheses, a cross-sectional, comparative research design was used. The cross-sectional, comparative
design allowed for comparisons to be made between groups, and to measure whether relationships exist
between two or more variables (Coughlan et al., 2007). Thus, it was beneficial in examining whether a
relationship was present between one’s traits of sympathy and their rationalization ability with their
behavioral intentions to partake in committing fraud.
The rationalization element was operationalized as the psychological thought process enabling an
individual to behave immorally or dishonestly in certain contextual situations 10 (Harrison et al., 2018). As
the decision to commit fraud depends upon the situation, this research used Harrison’s (2018) fraud scenario
survey, which had been used to examine fraud concerning media capabilities to assess undergraduate and
graduate students’ ability to rationalize committing fraud. Using the situational fraud scenario, the survey
helped determine the respondent’s level of agreeableness on a seven-point Likert scale to rationalize
measurement items with their behavioral intentions to commit fraud. Additionally, Lee’s (2009) Traits of
Sympathy survey was also used to assess the respondent’s level of agreeableness on a seven-point Likert
scale to sympathy measurement items. The surveys were given to undergraduate and graduate students at a
regional university in the South. They were used to collect data that was nominal (i.e., gender), ordinal (i.e.,
age), and interval as the assumption was made that there are equal and fixed intervals between the seven
levels of agreeableness.
In conducting this study, the aspiration was to examine whether a relationship was present between the
rationalization element and traits of sympathy with one’s behavioral intention to commit fraud.
Additionally, age and gender effects on these variables were examined. Data collected in quantitative
studies can be statistically analyzed using descriptive, correlational, and inferential techniques. Through
this statistical analysis, the data collected are interpreted and reported, thereby allowing conclusions to be
drawn and decisions made on whether to accept or reject the study’s null hypotheses. Descriptive statistics
were used to report the mean, median, mode, and standard deviation of the student’s age and gender.
Inferential statistics using a two-way multivariate analysis of variance (two-way MANOVA) and Multiple

SUMMARY & CONCLUSION

The problem to be addressed through this study was fraud’s epidemic status in organizations around
the world (PwC, 2018), as much about the process individuals use to rationalize acting unethically or
fraudulently remains a mystery (Harrison et al., 2018). With a perceived opportunity and pressure, an
estimated 80% of people will rationalize committing fraud (Wells, 2018) in what is considered the pre-fraud
state (Trompeter et al., 2014). Fraud is costly in monetary and non-monetary aspects (ACFE, 2020;
Crumbley et al., 2013). Fraud can harm organizations, impacting all stakeholders’ lives, including
employees, suppliers, lenders, and investors. Thus, fraud is too great to simply ignore (PwC, 2018). In
choosing to commit fraud (Murphy and Dacin, 2011), the rationalization process helps an individual justify
unethical, fraudulent behavior before or after the behavior occurs. The process helps them cope with guilt,
remorse, or discomfort while maintaining their moral principles (Mulder & van Dijk, 2020). However,
rationalization is unseen and, thus, unobservable behavior. Hence, the rationalization element has remained
the FT theory’s least understood and the least researched element (Trompeter et al., 2014).

98 Journal of Accounting and Finance Vol. 23(4) 2023
Prior research suggested to increase further understanding of the elements that help establish the
foundations for fraud to occur (Trompeter et al., 2014), it was necessary to view the rationalization element
of the FT theory (Kramer, 2015; Nugrapha, & Susanto, 2018; Peters & Maniam, 2016; Trompeter et al.,
2014) concerning the psychology of the potential fraudster considering personality traits such as the ability
to sympathize with others (Lee, 2009; Wall, 2015). Therefore, the purpose of this quantitative study was to
examine whether there was a relationship between one’s traits of sympathy and rationalization ability with
their behavioral ninety-six intentions to commit fraudulent acts in the pre-fraud state and whether
interaction exists between gender, age, and one’s rationalization and traits of sympathy. Understanding who
is more likely to rationalize fraud can focus on internal and external forces facilitating the rationalization
(Schnatterly et al., 2018). A thorough review of the prior literature was conducted and synthesized in
preparing for this study. Researchers have extensively studied multiple aspects of fraud. Schuchter & Levi,
2016), and the behavioral warning signs offenders signal before committing the act (Klein, 2015). As
rationalization is unseen and, thus, unobservable behavior, fewer studies have addressed the rationalization
element, especially in the pre-fraud state. Studies on the rationalization element of the FT theory have been
limited to the rationalizations for committing fraud (Kramer, 2015), for the acceptance of fraud (Zourrig &
Park, 2019), as a motivating factor in whistleblowing intentions (Latan et al., 2019), and the effect on
individuals with high pressure and high opportunity to commit fraud (Rustiarini et al., 2019).
This research gap allowed this study to further understand the rationalization element in the pre-fraud
state. Murphy and Dacin’s (2011) Psychological Pathways to Fraud Model, based on the FT theory elements
(Cressey, 1957), was the conceptual framework for this study. The FT theory depicts three essential
elements of fraud: Opportunity, pressure, and rationalization, all of which must be present for an individual
to be able to commit fraud. The Pathways model depicts if an individual is not already predisposed to
committing fraud (e.g., psychopaths who lack the 97 need to rationalize), once a perceived opportunity and
a perceived pressure are believed to exist, the individual will begin the rationalization process in deciding
to commit or not commit the act (Murphy & Dacin, 2011). The Pathways model and the FT theory were
the frameworks behind the decision to use Harrison’s (2018) fraud scenario survey and Lee’s (2009) Traits
of Sympathy survey to help examine whether a relationship exists between one’s rationalization and
sympathy in their decision to commit fraud in the pre-fraud state. The study used a cross-sectional,
comparative research design to examine the independent variables – the level of sympathy and
rationalization ability, and their effect on the study’s dependent variable – the participants’ behavioral
intentions to commit fraud. This design allowed for comparisons between groups and to measure whether
relationships exist between two or more variables (Coughlan et al., 2007). Thus, it was beneficial to explore
whether a relationship exists between the study’s participants’ rationalization ability and level of sympathy
with their behavioral intent to commit fraud.

Implications
Fraud is situational-based and is a form of deception, different from unintentional errors or lapses in
judgment (Albrecht et al., 2015). Organizations must acknowledge that some people are prone to
committing fraud. In contrast, others may have undeveloped or marginal ethical attitudes that place them at
an increased risk of succumbing to personal or organizational pressure, thereby heightening their ability to
rationalize committing fraud (Lakatos & Shoulders, 2020). Individuals with a keen sense of empathy and
equity may be more susceptible to committing fraud when feelings of guilt influence dishonesty induced
by inequity (Wong & Carducci, 2016).
When faced with pressures, most people do not immediately turn to fraud as their first choice for
resolving these pressures (Kirsch, 2018). Instead, they will look for an opportunity and then begin to start
rationalize committing the fraud if they believe the act is their only option in solving their problems (Kirsch,
2018). People rationalize committing fraud for distinct reasons.
Common rationalizations include entitlement due to being underpaid, unacceptable working conditions
or hours, unawareness that the behavior was wrong, or rationalizing the money taken was just a loan
(Kramer, 2015). In any given situation, ethical decision-making is influenced by multiple variables – both
internal (psychological) and external (social) (Baker, 2017). Emotions, either at an unconscious or

Journal of Accounting and Finance Vol. 23(4) 2023 99
conscious level, can influence how individuals respond to an ethical dilemma (Baker, 2017). Sympathy is
naturally aroused (Gregory, 2015), and like other emotions, it can be activated through observing another’s
pain or joy (Baker, 2017). Sympathy, comprised of emotional, cognitive, and behavioral tendencies, often
originates when another is in distress (König et al., 2020), and thus, this and other emotions are not as likely
to arise if there is an insufficient degree of proximity (Gregory, 2015). Most people transcend themselves
to overcome their selfishness and behave ethically through traits such as empathy and compassion (Pohling
et al., 2016). For this cross-sectional, comparative, quantitative study, the findings contributed to the pre-
existing literature presented in Chapter 2.
This literature indicated a need for increased fraud awareness of the pre-fraud state’s rationalization
element to answer whether a relationship was present between an individual’s ability to rationalize fraud
and their traits of sympathy towards others with their overall intention to commit fraudulent acts. We discuss
the implications of the study’s findings below the research questions. RQ1. The results of the Multiple
Linear Regression model are consistent with prior literature findings regarding emotions impacting
decision-making (Baker, 2017; Gregory, 2015; König et al., 2020; Pohling et al., 2016) in that the model
indicated sympathy as an emotion-influenced rationalization and the intention to commit fraud. While many
of the respondents could rationalize committing the fraud, their level of sympathy towards others’ feelings
impacted their decision not to commit the fraudulent act outlined in the survey’s scenario. Thus, the findings
supported rejecting the null hypothesis, thus accepting the alternative hypothesis, revealing sympathy and
rationalization statistically significantly predicted intention to commit fraud F (2, 174) = 17.136, p < .0005.
with an adjusted R2 = 15.5%, (shown in Figures 22 and 23). RQ2. In examining interactions between gender
and age on sympathy and rationalization, the results of the two-way MANOVA supported retaining the null
hypothesis. Thus, rejecting the alternative hypothesis, revealing the interaction effect between gender and
age on the combined dependent variables was not statistically significant. These results were inconsistent
with prior literature. Prior studies have 101 shown that females tend to allow emotions to impact their
decisions more than do males in their daily lives (Trampe et al., 2015). They are less likely to justify
unethical acts (Cory & Hernandez, 2014). These results are potentially due to the stereotype that females,
by nature, are more sympathetic and caring than their male counterparts. The failure to find any interaction
may be due to contributing factors such as the situational context of the fraud scenario given to the students.
The scenario provided in Harrison’s (2018) survey illustrated an example of interpersonal fraud where the
student could sell a used computer online, communicate through email, and collect an additional $100 if
they misrepresented the computer’s condition. The fact that the scene lacked an important level of emotional
impact and the small amount of monetary gain from committing the fraud might not have been deemed
worth the risk or effort.

Recommendations for Practice
Fraud does not discriminate. It can infiltrate all establishments regardless of type or size. Therefore,
organizations cannot afford to become complacent to fraud risk and have an ‘it will not happen to me’
mindset.
Focusing on the timing of rationalization, pre-fraud (justification for committing the act) versus post-
fraud (explanation for committing the act), is essential in preventing fraud from infiltrating an
establishment. Preventing fraud requires deconstructing fraudsters and understanding their mindsets and
attributes (Perri, 2011). Thus, identifying and understanding all the factors involved in a potential
fraudster’s ability to rationalize committing fraud is paramount to fraud prevention. The FT theory’s
rationalization element is the crucial link between one’s mind and the fraud itself (Mintchik & Riley, 2019).
The Psychological Pathways to Fraud model maintains that one’s rationalization and thought process in
deciding whether to commit fraud is extraordinarily complex (Murphy & Dacin, 2011). Evaluating fraudster
personality characteristics with their rationalization thought process could help implement and strengthen
fraud prevention strategies. These strategies would help reduce or eliminate the ability of people with high
rationalization ability and low levels of sympathy towards others from taking advantage of an opportunity
to commit fraud.

100 Journal of Accounting and Finance Vol. 23(4) 2023
This study aimed at broadening the understanding of one’s rationalization ability with their traits of
sympathy in the pre-fraud state to expand the knowledge of the FT theory rationalization element
concerning one’s psychological process of rationalizing to commit fraud. Knowledge of the techniques and
traits that allow potential fraudsters to rationalize their actions may be the missing piece of the fraud
prevention puzzle that will also help establishments design and strengthen anti-fraud programs (Mintchik
& Riley, 2019). As discussed previously, the tone at the top, ethical codes of conduct (implemented and
followed), and effective internal controls are essential in deterring fraud. As the responsibility for the
opportunity element of the FT theory lies solely with the establishment (Kramer, 2015), current anti-fraud
programs focus on reducing this element, and absent the consideration of other contextual factors; they may
not effectively discourage the behavior (Harrison, 2018). The findings support the extension of the
rationalization element of the FT theory. They can provide additional motivation that may supersede the
pressure element of the FT theory in certain situations. Using the knowledge obtained in this study,
organizations can expand and improve their anti-fraud programs. Murphy and Dacin (2011) maintained the
first process in rationalizing committing fraud is the awareness that the behavior is fraudulent. Through
offering hypothetical situations in training programs, knowledge and awareness provide individuals with a
resolution for resisting the FT theory’s elements.
Foreknowledge and awareness of these elements provide the foundation to help individuals reduce their
rationalization tendencies to commit fraud by increasing their ability to exercise counteractive control
(Lakatos & Shoulders, 2020). Human resource departments and managers can create hypothetical training
exercises. In-person and interactive presentation simulated learning modules allow for increased awareness
of how emotional traits, such as sympathy, impact one’s rationalization ability and intent to commit fraud,
whether solo or colluding with others.
By implementing hypothetical scenarios in their ethical training programs, organizations expose their
employees to potential opportunity, pressures, and rationalization situations, increase their awareness, and
better equip them to make the right ethical choice rather than rationalizing committing fraud (Lakatos &
Shoulders, 2020). These training programs, given to new employees during orientation and existing
employees at annual evaluations, will help increase an individual’s emotional intelligence in making them
aware of the impact of committing the fraud on not only themselves but also others. Kakati and Goswami
(2019) maintained that proactive measures are essential in the fight against fraud and insisted that
organizations continue to develop new techniques and tests to assess their new employees and periodically
assess current ones.
The authors further maintained that potential employees should not only be recruited and selected based
on experience, qualification, and merit, but their ethics, morality, integrity, and other traits should also be
examined through behavior analytics (Kakati & Goswami, 2019). Therefore, in addition to implementing
hypothetical scenarios in their ethical training programs, establishments could examine sympathy and
rationalization ability traits in different contextual situations alongside other personality tests in pre-
employment screenings. Using personality tests could help provide supplemental information that is
important in assessing an individual’s propensity to behave unethically in different situations. Integrating
personality assessments with formal training can help enhance fraud models and help ensure individuals
with a high rationalization ability and low emotional intelligence are not placed in positions lacking
effective internal control.
This study’s results provide increased fraud awareness in furthering the understanding of the
rationalization element of the FT theory as it relates to one’s traits of sympathy and intentions to commit
fraud in the pre-fraud state. With this information, fraud fighters can help reduce the likelihood of fraud
infiltrating an establishment. Increased and continued awareness will allow for establishments to focus on
being proactive instead of reactive to address and combat fraud. Recommendations for Future Research
Fraud is costly both in monetary and non-monetary terms. Thus, every establishment’s goal should be to
attempt to decrease, if not eliminate, the occurrence of fraud.
The opportunity element lies solely with the organization (Kramer, 2015). Depending upon the
circumstances, the organization and the individual (Peters & Maniam, 2016) can share control of the
pressure element. However, the rationalization element lies solely with the individual and is more difficult

Journal of Accounting and Finance Vol. 23(4) 2023 101
to ascertain, as it is an unseen/unobservable behavior. The rationalization element for this study was
operationalized as the psychological thought process enabling an individual to behave immorally or
dishonestly in certain contextual situations (Harrison et al., 2018). As the decision to commit fraud depends
upon the situation, and sympathy is activated through observing another’s pain or joy (Baker, 2017) with
sufficient proximity (Gregory, 2015), a recommendation for future research is to add sympathy element to
the scenario. For instance, given an opportunity, consider the impact sympathy would have on one’s ability
to rationalize adding a relative or close friend with a life-threatening illness and no medical insurance to a
company-sponsored health plan even though the company did not employ the relative or friend. Recall that
Harrison’s (2018) fraud scenario provided a $100 monetary incentive for those electing to misrepresent the
computer’s condition.
As prior research has shown, the motivation to commit fraud is directly proportionate to the amount of
monetary reward (Ramamoorti et al., 2014; Murphy and Dacin, 2011). Another recommendation would be
to increase the monetary gain in committing fraud. Would an increased monetary incentive outweigh any
feelings of sympathy towards others in one’s rationalization ability to commit fraud? To what extent does
the strength of an individual’s sympathy towards others impact their awareness of or propensity to commit
fraud when coupled with increased personal pressure of motivating elements? Does helping themselves
become more salient than the desire to think of others or the impact on others? Essentially, does their own
need, the amount of monetary gain, supersede their sympathy towards others and thus, impacts their
intention to commit fraud. Additionally, Harrison’s (2018) scenario used in the study had no consequences
for committing fraud. Thus, future research could consider whether consequences for committing the fraud
would impact one’s decision with or absent a sympathy element, and with or without an increase in
monetary incentive.
In addition to modifying the fraud scenario, future research could be conducted in different educational
settings, such as universities with religious affiliations both inside and outside the United States, to see if
differences exist between the student populations. Increasing the sample size with more participants from
different educational disciplines (outside the school of business) and a longitudinal study tracking students
from first-year to senior year may also offer a broader perspective. Further, examining whether family
upbringing 106 (e.g., single-parent home, grandparents as guardians), diverse types of frauds, and diverse
cultures impact one’s rationalization ability and sympathy towards others with their intent to commit fraud
is also of interest. For instance, future research could examine financial statement fraud, which typically
requires collusion, to see if sympathy toward others increases one’s motivation to participate in collusion
fraud. In addition, past psychological research has identified three personality types which increase an
individual’s propensity to rationalize partaking in unethical behavior: Machiavellian, Narcissism, and
Psychopathy (Parker et al., 2020).
Psychopaths lack emotional traits such as shame, sympathy, and guilt and, therefore, do not need to
rationalize their behavior (Wong & Carducci, 2016). However, those with Machiavellian and Narcissism
personality types use the rationalization process to justify their actions. Future research could examine the
relationship between individuals with Machiavellian and Narcissism personality types and their sympathy
toward others. Future research could also examine the impact that emotional intelligence (i.e., awareness
of not only their feelings but also the feeling of others) regarding other emotional traits outside of sympathy,
such as shame and guilt, to determine the impact on one’s rationalization ability and intent to commit fraud.
As discussed, the framework used in this study is useful for future research into the rationalization element
and fraud prevention. Knowing the pathways that potential fraudsters use in making the decision to commit
or not commit fraud is essential. Additionally, knowing the psychological traits that positively impact the
intent to commit fraud is just as valuable as knowing the negative ones.
This research can be used to expand on the research to create a new fraud model to include
psychological elements, behavior, and personality. For instance, I have developed a survey based on
Murphy and Dacin’s (2011) Psychological Pathways to Fraud Model, to further assess an individual’s
rationalization process in deciding to commit or not commit fraudulent acts. The survey incorporates a fraud
scenario to examine an individual’s thought process as they first determine whether the scenario is
considered fraudulent behavior. If not, Murphy and Dacin’s (2011) model states they will proceed with the

102 Journal of Accounting and Finance Vol. 23(4) 2023
behavior. If they consider it fraudulent behavior, they will then consider whether the behavior is acceptable
(e.g., given the corporate ethical culture), and conduct a cost/benefit analysis (Murphy & Dacin, 2011).
Further understanding of the rationalization element of the FT is essential in preventing frauds from
being committed, detecting unknown frauds that are underway, and investigating those that are uncovered.
Due to the many ways frauds are committed, researchers should conduct further studies of the pre-fraud
state’s rationalization element using a behavioral lens that should include personality traits outside of those
covered in this and other former studies.
Given the higher incidence of fraudulent behavior, a wide area of research is needed on determining
when conditions are ripe for such behavior to occur and what personality traits are more likely to indicate
a propensity to engage in such behavior. Much still needs to be done to fully comprehend the inherent
relationship between rationalization and intention to commit fraud and create frameworks and models that
serve as a reliable and valid indication of the FT theory’s rationalization leg.

Conclusions
Fraud is costly and warranted increased awareness due to its epidemic status (PwC, 2018) even before
the 2020 COVID-19 Pandemic. As fraud historically occurs more during economic distress, the impact of
the Pandemic on the world economy is certain to cause a 108 increase in the number of new frauds and
uncover existing frauds (Dorris, 2020). Thus, this economic distress further warrants an increase in fraud
awareness. This cross-sectional, comparative, quantitative study examined whether a relationship was
present between rationalization (Kramer, 2015; Nugrapha, & Susanto, 2018; Peters & Maniam, 2016;
Trompeter et al., 2014) and traits of sympathy (Lee, 2009; Wall, 2015) with one’s behavioral intent to
commit fraudulent acts in the pre-fraud state.
The target population was undergraduate and graduate business students at a regional university in the
South. The sample consisted of 184 students enrolled and taking courses over three weeks – June 22, 2020,
to July 13, 2020. Survey data were collected, de-identified, and analyzed. This study’s results fit the
conceptual framework, which was framed using Murphy and Dacin’s (2011) Psychological Pathways to
Fraud Model based on Donald Cressey’s 1973 Classic FT theory.
This conceptual model illustrates that if an individual is not already predisposed to committing fraud,
once a perceived opportunity and a perceived pressure are believed to exist, the individual will begin the
rationalization process in deciding to commit or not commit the act (Murphy & Dacin, 2011). The
framework supported the goal of obtaining further knowledge to increase fraud awareness with respect to
the FT theory’s rationalization element in the pre-fraud state. Using a behavioral/psychological lens, the
study examined the rationalization element concerning traits of sympathy intending to commit fraud.
The results indicated that one’s rationalization ability and traits of sympathy were significant factors in
predicting one’s intention to commit fraud. However, the results did not support any interaction between
gender and age on their combined rationalization ability and sympathy traits. This work contributed to the
argument that efforts to further understand the rationalization element in the pre-fraud state necessitate the
exploration of the human psyche to increase knowledge of what remains hidden in the minds of potential
fraudsters. The findings examined in this study are presented to assist in the fight against fraud. The fraud
scenario used in the survey was interpersonal fraud being conducted in the online environment.
While the FT theory elements of opportunity, pressure, and rationalization must be present for any type
of fraud to be committed, for other types of fraud to be considered or committed, individuals may require
increased pressure and rationalization. All individuals have the propensity to rationalize their behavior,
except for psychopaths who lack emotional traits such as shame, sympathy, and guilt and, therefore, do not
need to rationalize their behavior (Wong & Carducci, 2016). Even though college-aged students were used
as the sample for this study, and not all age groups (e.g., 60+), were well-represented, or represented at all,
the results allow for transferability in the comparison of the socio-demographic characteristics and
personality traits of the study’s participants with a similar population (Banerjee & Chaudhury, 2010).
As the interpersonal fraud scenario given to the students was being conducted in the online domain,
and the students were taking online courses, they possessed sufficient knowledge and experience of this
domain to allow for generalizable and valid results. The same should be said of similar populations taking

Journal of Accounting and Finance Vol. 23(4) 2023 103
courses online. Given Wells (2018) estimates 80 percent of individuals would commit fraud if given an
opportunity; organizations cannot afford to become complacent to fraud risk and have an ‘it will not happen
to me’ mindset. As efforts to minimize fraud occurrences have increased, so have the efforts of fraudsters
finding new and ingenious ways to commit these acts. As the types of fraud and methods to commit fraud
continue to evolve, so much is the knowledge of practitioners, organizations, and researchers alike.
Thankfully, increased fraud awareness can help reduce the likelihood of fraud infiltrating an establishment.
Now is the time for management to focus on the future and increase fraud awareness to better protect their
business or organization from fraud. Practitioners, organizations, and researchers must arm themselves with
knowledge of the theories and practices addressing this phenomenon, especially regarding insights into a
fraudster’s behavior during the pre-fraud state. Increased and continued awareness will allow
establishments to focus on being proactive instead of reactive to address and combat fraud.

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