When we first read or hear about a fraud or ethics scandal, it's easy to shake our heads and wonder what they were thinking. But when concocting a scheme, fraudsters don't conduct a cost-benefit analysis or consider bad outcomes.

Do you remember how 1) opportunity, 2) pressure, and 3) rationalization form the fraud triangle? Rationalization is fuel for fraud and sounds something like one of these:

• It's just a loan.
• No one will notice.
• I'll pay it back later.
• I'm underpaid anyway.
• It's not hurting anyone.
• It's just a one-time thing.
• Everyone else is doing it.
• My employer can afford it.

Rationalization, or self-delusion, is a way of creating mental distance from wrongdoing. Fraudsters often act on impulse. Their decision-making process seldom weighs the probability of exposure and punishment to potential financial rewards.

Washington Post - Former head of Howard University's bursar's office pleads guilty to stealing more than $140,000

DOJ press release - Former Howard University Associate Director Pleads Guilty to Defrauding the School Out of More Than $100,000

This case is a little more complicated because it required collusion, two employees working together for nefarious purposes. One disbursed fraudulent financial aid to the other, and the two split the proceeds. 

Available details provide only a broad outline of the scheme and nothing about their motivations. But it's likely one or both perceived financial pressure of some sort and saw an opportunity to exploit a control weakness.

Compare the annual salaries of two mid-level university financial officials to the $140,000 headline amount, plus restitution and forfeitures, ruined reputations, derailed careers, and potential prison. The probability of exposure was not part of their thought process!

When one thinks of fraud prevention, the opportunity side of the fraud triangle is usually addressed first with controls designed to prevent or detect fraud or unethical behavior.

Addressing the rationalization side of the fraud triangle is equally essential. As featured previously, addressing rationalization starts with the Tone at the Top:

Tone at the Top: Foundation for Success - Part 2

The Tone at the Top includes many areas of influence throughout an organization. The trickle-down effect of the tone attitudes communicated for good or ill can originate from many positions.

While an organization’s board and senior management are most prominently visible, employees also look to their immediate leadership team for direction. Your actions will speak louder than words!

Lawrence Hoffman, assistant professor and director of the forensic accounting program at Mount Saint Mary's University, explains: ¹

It's like when you're a kid growing up, you don't hear a word your parents say, but you emulate what they do.

Lawrence Hoffman, PhD, Mount Saint Mary's University

Of course, we don't know whether Howard University's tone at the top had any bearing on the matter at hand. But proper modeling and subtle proactive reminders to employees, aka "ethical nudging," can contribute to a positive control environment and ethical behavior.

Signage and messaging about masking and handwashing are examples of ethical nudging. Another example was the campus-wide reminder about policies and procedures related to the administration of research and sponsored projects proposals and awards.

Even the slightest of nudges can be effective. Experiments have shown that employees make better ethical decisions when office walls have pictures of aspirational figures than when there are no such pictures.²

Modeling control-conscious behavior with an assist from ethical nudging can reinforce or boost the control environment in your area of influence.

¹ Bret Hood, Twisted rationalization, overlooked component of fraud, Fraud Magazine (July/August 2020)

² Beverly Kracher, Ethical Nudges, Omaha Magazine (August 25, 2016)