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Advancing theory of fraud: the S.C.O.R.E. model

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DOI: 10.1108/JFC-12-2017-0128

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 Journal of Financial Crime
Advancing theory of fraud: the S.C.O.R.E. model
Georgios L. Vousinas,
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JFC
26,1 Advancing theory of fraud:
the S.C.O.R.E. model
Georgios L. Vousinas
National Technical University of Athens, Athens, Greece
372

Abstract
Purpose – This paper aims to elaborate on the theory of fraud by enhancing the existing theories behind the
factors that force people to commit fraud.
Design/methodology/approach – The paper reviews the most commonly used and widely accepted
models for explaining why people commit fraud – the fraud triangle, the fraud diamond, the fraud scale and
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the MICE model. The author argues that these models need to be updated to adapt to the current
developments in the field and the ever-growing fraud incidents, both in frequency and severity, and builds on
the theoretical background to create a new model so as to enhance the understanding behind the major factors
which lead to the commitment of fraud.
Findings – The author identifies a major element – ego – which plays a crucial role in compelling people to
commit fraud and concludes in the formation of the S.C.O.R.E. model, which is graphically depicted in the
fraud pentagon. He goes further by adding the factor collusion to better apply in cases of white-collar crimes.
Originality/value – The paper develops the S.C.O.R.E. model to contribute to the development of fraud
theory by identifying the key factors that play a major role in whether fraud will actually occur and acting as
a theoretical benchmark for all future reference.
Keywords Capability, Opportunity, Fraud, Rationalization, Ego, Stimulus
Paper type Research paper

Journal of Financial Crime
Vol. 26 No. 1, 2019
pp. 372-381
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-12-2017-0128
1. Introduction
Fraud is a widely conceivable concept, but its characteristics are frequently unrecognizable
and not until it is too late. There are various definitions of fraud, due to its diverse nature,
but for the purpose of this paper, the following widely accepted definition provided by the
Institute of Internal Auditors’ International Standards for the Professional Practice of
Internal Auditing (Standards) is used:
[. . .] any illegal act characterized by deceit, concealment, or violation of trust. These acts are not
dependent upon the threat of violence or physical force. Frauds are perpetrated by parties and
organizations to obtain money, property, or services; to avoid payment or loss of services; or to
secure personal or business advantage (The IIA’s, 2017).
The only thing that is constant in fraud is change as it is a dynamic process which is multi-
layered and penetrates into corporate procedures while the fraudsters always find new
methods to commit fraud and cover their traces. As a result, dealing with fraud is a long,
complicated procedure that requires a deep understanding of both the reasons behind its
occurrence and the ways by which it can be mitigated. So confronting fraud is like fighting
against the Lernean Hydra[1]. And fraud is an international problem which can occur in any
organization at any time while fraud incidents are nowadays increasing mainly driven by
the global financial crisis and the subsequent economic recession. According to the latest
Report to the Nations on Occupational Fraud and Abuse (2016), published by Association of
Certified Fraud Examiners (ACFE), the median estimate was that fraud costs organizations
5 per cent of revenues each year. To highlight the magnitude of this estimate, applying this
 percentage to the 2016 estimated Gross World Product of $75.6 trillion, results in a projected The S.C.O.R.E.
potential total fraud loss of up to $3.8 trillion worldwide[2]. model
As perceived by the aforementioned fraud is a crucial issue which affects all aspects of
corporate activity so dealing with it is vital, especially in times of crisis.
The main objective of this paper is twofold: to review the existing theoretical framework
regarding the reasons why people commit fraud and to build on the theory to develop a
model to better enhance our understanding behind the major factors which lead to the
perpetration of fraud. 373

2. Theoretical background
Before we proceed to the theoretical extensions, an overview of the dominant models for
explaining why people commit fraud is provided so as to highlight the existing theoretical
background and the current developments and on the other hand to identify gray areas and
fields for improvement.
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The most widely accepted model for explaining why people commit fraud is the fraud
triangle. This is a model developed by Donald Cressey (1953), a criminologist whose
research focused on embezzlers – people he called “trust violators”.
One leg of the triangle represents a perceived non-shareable financial need. The
second leg represents perceived opportunity, and the final stands for rationalization.
Pressure is the first leg of the fraud triangle. Cressey defined pressure as a non-
shareable financial problem, or motive that drives a person to commit fraud. Cressey
hypothesized that trusted persons become trust violators when they believe that they
have such a problem.
Perceived opportunity is the second leg of the fraud triangle. According to the fraud
triangle theory, the presence of a non-shareable financial problem, by itself, will not lead an
employee to commit fraud. All three legs must be present for a trust violation to occur. The
perceived opportunity leg refers to the perceived ability to commit fraud. That is, the
employee must perceive that he has an opportunity to commit the crime without being
caught. In Cressey’s view, there are two components to the perceived opportunity leg:
general information and technical skill. General information is the knowledge that the
employee’s position of trust could be violated. This knowledge might come from hearing of
other embezzlements, from seeing dishonest behavior by other employees, or just from
generally being aware of the fact that the employee is in a position where he could take
advantage of his employer’s faith in him. Technical skill refers to the abilities needed to
commit the violation. These are usually the same abilities that the employee needs for his
position.
The third and final factor in the fraud triangle is rationalization. Rationalization
enables the perpetrator to understand his illegal behavior, and it allows him to maintain
his concept of himself as a trusted person. Rationalization is a necessary component that
must occur before the crime takes place. In fact, the rationalization is part of the
motivation for the crime. Because the embezzler does not view himself as a criminal, he
must justify his misdeeds before he ever commits them. Cressey found that the
embezzlers he studied generally rationalized their crimes by viewing them as essentially
non-criminal, justified, or part of a general irresponsibility for which they were not
completely accountable. He also found that rationalizations used by trust violators
tended to be linked to their positions and to the manner in which they committed their
violations.
Cressey’s fraud triangle demonstrates certain characteristics will increase the likelihood
for fraud to occur, but it does not provide perfect guidance. Although the fraud triangle
 JFC helps explain the nature of many occupational offenders, it does not explain the nature
26,1 of all occupational offenders. And although academicians have tested Cressey’s model,
it has still not fully found its way into practice in terms of developing fraud prevention
programs. Thus, it seems that no single model will fit every situation. Moreover,
Cressey’s study is nearly half a century old, and there has been considerable social
change in the interim. And now, many antifraud professionals believe there is a new
374 breed of occupational offender – one who simply lacks a conscience sufficient to
overcome temptation.
Albrecht et al. (1984) introduced the fraud scale in “Deterring Fraud: The Internal Auditor’s
Perspective” (Institute of Internal Auditors Research Foundation) to be a tool to assess the
likelihood of a fraudulent act through the evaluation of the relative forces of pressure,
opportunity and personal integrity. Albrecht and his colleagues believed that fraud is difficult
to predict because a reliable profile of occupational fraud perpetrators does not exist. They
suggested that the likelihood of a fraudulent act could be assessed by evaluating the relative
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forces of pressure, opportunity and personal integrity. Pressure and opportunity are both
components of the fraud triangle, but the fraud scale substitutes personal integrity for
rationalization. The fraud scale is particularly applicable to financial statement fraud, in which
sources of pressure (e.g. analysts’ forecasts, management’s earnings guidance and a history of
sales and earnings growth) are more observable. With that in mind, the fraud scale posits that
when pressure, opportunity and integrity are considered at the same time, one can determine
whether a situation possesses a higher probability of fraud.
The benefit of using personal integrity is that by observing both a person’s decisions
as well as the decision-making processes, his commitment to ethical decision-making can
be gauged.
Wolfe and Hermanson (2004) incorporated the element of capability into Cressey’s model,
transforming it from a triangle into a diamond in their article “The Fraud Diamond:
Considering the Four Elements of Fraud”.
According to Wolfe and Hermanson, an individual’s personality traits and capability
also impact the probability of fraud: “Opportunity opens the doorway to fraud, and incentive
(pressure) and rationalization can draw a person toward it; but the person must have the
capability to recognize the open doorway as an opportunity and to take advantage of it by
walking through, not just once, but time and time again.
Kranacher et al. (2010) suggest that the motivations of fraud perpetrators might be more
appropriately expanded and identified with the acronym MICE: money, ideology, coercion
and ego. Ideological motivators justify the means where they can steal money or participate
in a fraud act to achieve some perceived greater good that is consistent with their beliefs
(ideology). Coercion occurs when individuals may be unwillingly pulled into a fraud scheme,
but those individuals can turn into whistleblowers. Ego can also be a motive for fraud, as
often people do not like to lose their reputation or position of power in front of their society
or families. This social pressure can be a strong motive to commit fraudulent act just to keep
their ego. While the MICE heuristic does not explain all fraudulent motivations, and some fit
several categories, it is easily remembered. In addition, it provides professionals with a
broader framework within which to consider the likelihood of fraud.
Dorminey et al. (2010) revisit the fraud triangle, highlighting recent findings and
contemporary thinking in the anti-fraud community. They highlight the importance of the
Fraud Triangle as a model for assessing fraud risk, but they argue that it is only one
component of an overall audit risk assessment plan and alone is an inadequate tool for
deterring, preventing and detecting fraud.
 Kassem and Higson (2012) argue that it is significant for external auditors to consider The S.C.O.R.E.
all the fraud models to better understand why fraud occurs. They suggest that all the model
above models (fraud triangle, fraud diamond, fraud scale and MICE model) should be
regarded as an extension to Cressey’s fraud triangle model and should be integrated in
one model, “the New Fraud Triangle Model”, that includes motivation, opportunity,
integrity, and fraudster’s capabilities.
They believe that with their proposed model external auditors will consider all the
necessary factors contributing to the occurrence of fraud thus, being able to effectively
375
assess fraud risk.

3. Theoretical framework
3.1 The S.C.O.R.E. model
After reviewing the theoretical background behind the factors that force people to commit
fraud, it is made clear that the fraud models in use need to be updated to adjust to the current
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developments in the field and the growing fraud incidents. To enhance the understanding
behind the major factors which lead to the commitment of fraud, the author builds on the
theoretical background and introduces the S.C.O.R.E. model. The name of this model is the
acronym of the words: stimulus, capability, opportunity, rationalization and ego. The first
four elements of the model (stimulus, capability, opportunity and rationalization) stem from
the Fraud Diamond (which is an extension to the fraud triangle), while the fifth is introduced
to enhance both fraud detection and prevention as well as to broaden our understanding
regarding the major determinants of fraudulent activities.
The analysis of the five elements of the S.C.O.R.E. model is given below:
3.1.1 Stimulus/incentive. Stimulus (or incentive) is the pressure to commit fraud and has
financial and non-financial nature. Pressure takes different forms e.g. high financial needs,
need to report better results due to the pressure to meet targets (especially in crisis times),
frustrations related to work environment, professional aspiration and the desire to reach it
as soon as possible, while sometimes just a person’s desire to prove he/she can defeat the
system (attributed to egoism) etc. In crisis years, the potential of fraudulent acts is
substantially higher as a result of the economic recession and the pressure registered by
employers to fulfill the business objectives along with cost cutting due to tighter budgets, so
that their own financial position or even professional status in the company not to be
affected.
3.1.2 Capability. Capability refers to the personal traits and abilities that play a major
role in whether fraud will actually occur given the presence of pressure, opportunity and
rationalization. Many frauds, especially some of the multibillion-dollar financial statement
frauds, would not have occurred without the right person with the right capabilities
implementing the details of the fraud. Opportunity opens the door, and incentive and
rationalization draw the potential fraudster toward the open doorway, but the individual
must also have the capability to walk through that opening.
3.1.3 Opportunity. Opportunity is the ability to commit fraud. The perpetrator believes
that he/she can conceive and commit acts of fraud without being detected. It should be
noticed that opportunities must be perceived as real by the perpetrator, meaning that
opportunity is not implicitly real. Studies on frauds have emphasized that opportunity is
provided also by the position and authority of the individuals within the company. A top
position in the company confers power and the ability.
3.1.4 Rationalization. Rationalization has to do with justifying the fraud. As many
fraudsters view themselves as honest, ordinary people and not as criminals, they have to
 JFC come up with some reasoning to make the act of committing fraud more acceptable to them.
26,1 Some common rationalization statements are the following:
 I’ll just take this money now and pay it back later;
 I was entitled to the money;
 no one will notice; and
 I deserve this after all these years with this company.
376
Some persons also rationalize their fraudulent behavior by reframing their definition of
wrongdoing to exclude their own actions.
3.1.5 Ego. Theories rooted in psychology are based on the view that criminal behavior is
the product of mental processes. Most notably, the psychoanalytical ideas of Sigmund Freud
(1923) focus on early childhood development and on unconscious motivations, that is,
motivations of which the offender himself is not aware. Freud identified a three-part
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structure to human personality: the id (the drive for food, sex, and other life-sustaining
things), the super-ego (the conscience that develops when learned values become
incorporated into a person’s behavior), and the ego (the product of the interaction between
what a person wants and what his conscience will allow him to do to achieve what he
wants). According to Freud, the ego is the part of personality that helps us deal with reality
by mediating between the demands of the id, superego, and the environment. The ego
prevents us from acting on every urge we have (produced by the id) and being so morally
driven that we can’t function properly.
Stotland (1977) argues that one of the main motivations behind the commitment of white-
collar crimes (economic offenses committed through the use of some combination of fraud,
deception, or collusion) (Weisburd and Waring, 2001) appear to be the sense of superiority,
mastery and the admiration of others. So regarding ego he points out that:
[. . .] as fraudsters found themselves successful at one crime, they began to gain some secondary
delight in the knowledge that they are fooling the world, that they are showing their superiority to
others.
Duffield and Grabosky (2001) note that in addition to financial strain, another aspect of
motivation that may apply to some or all types of fraud is ego. This can relate to power over
people as well as power over situations. In terms of the former, the sensation of power over
another individual or individuals seems to be a strong motivating force for some fraud
offenders to the point that it becomes an end in itself.
According to Allan (2003), one of the most common personality types among fraudsters
is the “egotist”, someone who is driven to succeed at all costs, self-absorbed, self-confident
and often narcissistic. According to the “Diagnostic and Statistical Manual of Mental
Disorders”[3], narcissistic personality disorder is a pervasive pattern of grandiosity, a strong
need for admiration and a lack of empathy for others. People with this kind of disorder
believe they are superior or unique and they are likely to have inflated views of their own
accomplishments and abilities.
As shown before, the MICE model suggested by Kranacher et al. (2010) highlighted the
significance of ego as a major motive for committing fraud.
Geis (2011) suggests that a combination of many factors compel certain people to commit
fraud. One of the most influential factor is personality, which refers to the attributes that
characterize a unique individual. The author states that by nature some people are more
ethical than others. For example, according to Geis if a person is arrogant or entitled by
nature, he is more likely to commit fraud than someone who is more docile. And one of the
 most common motivating factors for fraud, as identified by the author are the sense of The S.C.O.R.E.
entitlement and the desire for power/ego. model
In their study, Pedneault et al. (2012) indicate that an individual must have a strong ego
and great confidence that he will not be detected to commit fraud.
Ego is also proved to be the common thread in some of the most egregious frauds in
recent recorded white-collar criminal history.
One of the few corporate fraudsters to actually admit the role of ego in his crimes is
Russell Wasendorf, the founder of Peregrine Financial Group, a defunct Iowa-based 377
commodity brokerage. The admission comes in a suicide note written by Wasendorf in 2012.
“I guess my ego was too big to admit failure. So I cheated” the note said. For nearly 20 years,
Wasendorf created phony bank statements, sending them to a post office box that he
controlled, then presenting them to regulators as proof that his firm was financially sound.
But all the while, he was stealing millions of dollars in customer funds and his scam reached
the amount of $200m[4].
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An oversized ego is also behind one of the largest financial frauds of all time, the $7bn
global Ponzi scheme created by Robert Allen Stanford, which involved the firm that bore the
fraudster’s name, Stanford Financial Group[5].
And the most notorious fraud of all time, Bernie Madoff’s $65bn swindle (a massive
Ponzi scheme that is considered the largest financial fraud in USA history), was also
supercharged by ego. “I refused to accept the fact, could not accept the fact, that for once in my
life I failed”, he said. But while he famously apologized to his victims, most of the statement
was about Madoff, and all he was feeling as he prepared to head to prison for the rest of his life.
His nearly 600-word statement used the words “I” or “me” more than 40 times[6].
From all the above it is made clear that Ego constitutes a major element in determining
why people are compelled to commit fraud thus, being a fundamental part of the S.C.O.R.E.
model. It must be pointed out that in spite of the fact that fraud may originate from one of
the five elements of the model, for example the oversized ego of the CEO, an urgent financial
need etc., all the elements must be present for the commitment of fraud to occur (Figure 1).

3.2 The extended S.C.C.O.R.E. model

Figure 1.
The Fraud Pentagon
 JFC The fraud triangle is largely predicated on an individual acting in isolation (Dorminey et al.,
26,1 2010). However, the major frauds of recent decades, including Enron, WorldCom and
Parmalat, all justify that collusion is a central element in many complex and costly frauds
and financial (white-collar) crimes. Indeed, it is difficult to identify a major recent
organizational fraud that has not implicated multiple members of the organization.
The term collusion refers to a deceitful agreement or compact between two or more
378 persons, for the one party to bring an action against the other for some evil purpose, as to
defraud a third party of his rights[7]. Parties involved in collusion may be employees within
an organization, a group of individuals spanning multiple organizations and jurisdictions or
members of a dedicated criminal organization or collective (Venter, 2007). Once there is
collusion between employees, or between employees and an external party, fraud is much
harder to stop and this, especially nowadays, is a growing problem. As well as corrupting
existing employees, criminal groups now actively seek to place their own person in a
company as a temporary employee or contractor. Once a fraud starts, honest employees can
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then be drawn in as a dishonest culture develops and a fraudulent environment is well

established. It is also often the fraudsters to coerce others to commit or conceal fraud. A
person with a very persuasive personality may be able to convince others to go along with a
fraud or to simply look the other way. In this direction, Allan (2003) notes that a common
personality type among fraudsters is the “bully”, who:
[. . .] makes unusual and significant demands of those who work for him or her, cultivates fear
rather than respect [. . .] and consequently avoids being subject to the same rules and procedures
as others.
Many financial reporting frauds are committed by subordinates reacting to an edict from
above to “make your numbers at all costs, or else”. Collusion can also be involuntary as the
fraud expands inside an organization and fraudsters use their capabilities to take advantage
of the positions of others and exploit unsuspecting people.
The significance of collusion as a main factor in committing fraud is also justified by the
recent ACFE’s Report to the Nations on Occupational Fraud and Abuse (2016), which
showed that nearly half of the examined cases involved multiple perpetrators colluding with
one another to commit fraud, and the greater the number of fraudsters involved, the higher
losses tended to be.
One possible reason for the increase in losses associated with multiple perpetrators is that
many anti-fraud controls work on the basis of separation of duties and independent checks.
When multiple fraudsters work together, they might be able to undermine the process of
independently verifying transactions or other mechanisms designed to uncover fraud.
So the S.C.O.R.E. model becomes the S.C.C.O.R.E. model, with the addition of the sixth
element of collusion, resulting in the Fraud Hexagon, as shown below (Figure 2):
It must be stressed the fact that the S.C.C.O.R.E. model should be used as an extension to
the S.C.O.R.E. model to better apply in white-collar crimes, where collusion plays a crucial
role in determining the factors which lead to the commitment of financial fraud.

4. Concluding remarks
Companies nowadays face numerous risks e.g. financial risk, supply-chain risk and
regulatory issues, which all affect them in different ways and to varying degrees. While
fraud risk is just one of the elements in the long list of risks, it is a growing problem
affecting both public entities and private organizations as well in all the countries and
all the sectors of the economy, especially in light of the recent global financial crisis.
Fraud constitutes a complex, dynamic procedure which constantly adapts to the
 The S.C.O.R.E.
model

379
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Figure 2.
The Fraud Hexagon

current environment. That is the reason why fraud is difficult to detect and even harder
to prove in a court of law. Moreover, fraud has a very diverse nature and that’s why not
only there are many definitions, but also different fraud models have been developed to
explain the reasons why fraud incidents occur. And by the overview of the theoretical
background it is emphasized that no single model can fit in every situation. The author
of the current paper argues that the existing models have to be updated to adapt to
the current developments in the field and the ever growing fraud incidents. For this
reason, the author builds on the theory to create a new model, the S.C.O.R.E. model (the
acronym of the words: Stimulus, Capability, Opportunity, Rationalization and Ego), so
as to enhance the understanding behind the major factors which lead to the
commitment of fraud. This model stems from the Fraud Diamond, which is an
extension to the Fraud Triangle, and identifies the element of Ego, which is proved to
play a critical role in compelling people to commit fraud. The S.C.O.R.E. model is
graphically depicted in the Fraud Pentagon and can be customized with the addition of
the factor “collusion” to better apply in cases of financial crimes.
The overall aim of this paper is to contribute to the development of fraud theory by
trying to shed light on the key factors that play a major role in whether fraud will actually
occur and developing a model which will serve as a theoretical benchmark for all future
reference. The author also hopes to initiate a fruitful academic and professional dialogue on
the subject and turn the related interest toward this major issue which not only remains a
severe international problem, but the fraud incidents are growing exponentially, especially
in times of financial crisis and economic distress.

Notes
1. The Lernaean Hydra was a gigantic water-snake-like monster in Greek mythology, with nine
heads (the number varies), one of which was immortal. Every time someone would cut off one of
them, two more heads would emerge from the fresh wound.
 JFC 2. 2016 Report to the Nations on Occupational Fraud and Abuse, Copyright 2016 by the Association
26,1 of Certified Fraud Examiners, Inc.”, available at: www.acfe.com/rttn2016/docs/2016-report-to-the-
nations.pdf
3. The Diagnostic and Statistical Manual of Mental Disorders (DSM) is published by the American
Psychiatric Association (APA) and offers a common language and standard criteria for the
classification of mental disorders, available at: www.psychiatry.org/psychiatrists/practice/
380 dsm?_ga=2.50611305.1520553320.1510661060-359188563.1510661060
4. “Special report: Iowa broker built empire on a lie concealed in a postal box”, accessed December
28th 2017, available at: www.reuters.com/article/us-wasendorf-life-one/special-report-iowa-
broker-built-empire-on-a-lie-concealed-in-a-postal-box-idUSBRE88N0EJ20120924
5. “Top 10 Swindlers”, accessed December 28th 2017, available at: http://content.time.com/time/
specials/packages/article/0,28804,2104982_2104983_2105000,00.html
6. “Bernard L. Madoff’s Statement to the Court”, accessed December 28th 2017, available at: www.
Downloaded by Mr Georgios Vousinas At 09:49 05 March 2019 (PT)

nytimes.com/2009/06/30/business/30bernietext.html
7. Bryan Garner, Ed., Black’s Law Dictionary. 10th ed. (2014), s.v., “collusion.”

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Corresponding author
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Georgios L. Vousinas can be contacted at: vousinas@yahoo.com
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