The Association of Certified Fraud Examiners (ACFE) has come up with a model to help explain why fraud occurs. Its referred to as the fraud triangle. The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud. It consists of three components which, together, lead to fraudulent behavior.
- Pressure (perceived unshareable financial need)
- Opportunity (includes small likelihood of getting caught)
- Rationalization (only borrowing it, underpaid, deserved it, etc)
Consider the fraud triangle elements as it relates to allegations raised just last week.
A retired Army Sargent Major returned to the Army as a civilian senior program manager and a contracting officer's representative. Last October, he invited a couple of executives from a company that he oversaw and solicited bribes. His solicitations were somewhat comical. He invited the two representatives to lunch. When they arrived, he was wearing sunglasses and drinking a margarita. He then instructed the company representatives to turn off their cell phones. The Army guy then passed out menus to the executives and inside the plastic covering for the center section of the menus was a piece of paper which outlined a bribe and extortion solicitation. Communications were conducted by typing into a notes application on the Army guy's phone.
The Army civilian was asking for $500 thousand. In return for the $500 thousand, the Army civilian stated that he would expunge damaging information contained within Army files on the company. Additionally, he would ensure that the company received the follow-on contract to the program they were currently working. That program was estimated to total $100 million to $120 million over a five year period.
To their credit, the company executives declined the offer and then paid a visit to the FBI. The FBI opened an investigation, using the company executives to pass $50 thousand in bribes to the Army civilian. The Army civilian used most of the money to pay off family credit cards. At one meeting during the investigation, the Army guy patted down the executive looking for a recording device. He missed it and was caught on video discussing bribe money.
The Army civilian had the pressure (credit card debt) and the opportunity (oversight of a significant dollar Government contract). We don't know too much about his "rationalization" because the DOJ press release didn't provide enough information.
Contractors, do you trust your employees to do the right thing when faced with similar situations? Do you have an effective standards of conduct policy? Are you setting the proper "tone at the top"?