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  • If you ask people whether they think stealing is wrong,

  • most of them would answer, "Yes."

  • And yet, in 2013, organizations all over the world

  • lost an estimated total of 3.7 trillion dollars to fraud,

  • which includes crimes like embezzlement, pyramid scheme, and false insurance claims.

  • This wasn't just the work of a few bad apples.

  • The truth is that many people are susceptible

  • not only to the temptation to commit fraud

  • but to convincing themselves that they've done nothing wrong.

  • So why does fraud happen?

  • While individual motivations may differ from case to case,

  • the fraud triangle,

  • a model developed by criminologist Donald Cressey,

  • shows three conditions that make fraud likely:

  • pressure, opportunity, and rationalization.

  • Pressure is often what motivates someone to engage in fraud to begin with.

  • It could be a personal debt,

  • an addiction,

  • an earnings quota,

  • a sudden job loss,

  • or an illness in the family.

  • As for opportunity, many people in both public and private sectors

  • have access to tools that enable them to commit and conceal fraud:

  • corporate credit cards,

  • internal company data,

  • or control over the budget.

  • The combination of pressure

  • and being exposed to such opportunities on a daily basis

  • can create a strong temptation.

  • But even with these two elements,

  • most fraud still requires rationalization.

  • Many fraudsters are first time offenders,

  • so in order to commit an act most would regard as wrong,

  • they need to justify it to themselves.

  • Some feel entitled to the money because they are underpaid and overworked

  • and others believe their fraud is victimless,

  • perhaps even planning to return the money once their crisis is resolved.

  • Some of the most common types of fraud

  • don't even register as such to the perpetrator.

  • Examples include employees fudging time sheets or expense reports,

  • taxpayers failing to report cash earnings,

  • or service providers overbilling insurance companies.

  • Though these may seem small,

  • and can sometimes only involve hundreds of dollars,

  • they all contribute to the big picture.

  • And then there's fraud on a massive scale.

  • In 2003, Italian dairy food giant Parmalat went bankrupt

  • after it was found to have fabricated a 4 billion dollar bank account

  • and falsified financial statements to hide the fact that its subsidiaries had been losing money.

  • Because it was family controlled,

  • corporate governance and regulator supervision were difficult,

  • and the company likely hoped that the losses could be recouped

  • before anyone found out.

  • And it's not just corporate greed.

  • Governments and non-profits are also susceptible to fraud.

  • During her time as City Comptroller for Dixon, Illinois,

  • Rita Crundwell embezzled over 53 million dollars.

  • Rita was one of the country's leading quarter horse breeders

  • and winner of 52 world championships.

  • But the cost of maintaining the herd ran to 200,000 dollars per month.

  • Because her position gave her complete control over city finances,

  • she was easily able to divert money

  • to an account she used for private expenses,

  • and the scheme went unnoticed for 20 years.

  • It is believed that Crundwell felt entitled to a lavish lifestyle

  • based on her position,

  • and the notoriety her winnings brought to the city.

  • It's tempting to think of fraud as a victimless crime

  • because corporations and civic institutions aren't people.

  • But fraud harms real people in virtually every case:

  • the employees of Parmalat who lost their jobs,

  • the citizens of Dixon whose taxes subsidized horse breeding,

  • the customers of companies which raise their prices to offset losses.

  • Sometimes the effects are obvious and devestating,

  • like when Bernie Madoff caused thousands of people to lose their life savings.

  • But often they're subtle and not easy to untangle.

  • Yet someone, somewhere is left holding the bill.

If you ask people whether they think stealing is wrong,

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B1 US TED-Ed fraud corporate commit dixon rita

【TED-Ed】How people rationalize fraud - Kelly Richmond Pope

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    Ann posted on 2016/01/06
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