Corporate misconduct occurs when the three elements of 'opportunity,' 'motivation and pressure,' and 'rationalization' combine, and preventing it requires efforts to eliminate each element.
The opportunity element can be addressed through division of labor and strengthening the internal control system, motivation and pressure through appropriate workload assignment and the establishment of a fair evaluation system, and rationalization through ethics education and transparent communication.
Companies must prevent misconduct and minimize damage by strengthening their internal control systems, ensuring transparency in their human resources systems, and establishing an ethical management culture.
Illegal activities within a company, or fraudulent actions, always pose a risk. To prevent fraud, it's crucial to understand its root causes. Organizational crime researcher Donald Cressey and certified public accountant Steve Albrecht proposed the 'Fraud Triangle' theory, which explains the causes of fraudulent behavior through three elements: 'opportunity,' 'motivation and pressure,' and 'rationalization.'
If any one of these three elements is missing, fraud is unlikely to occur. Therefore, to prevent fraud from happening, these three elements must be prevented from arising.
First, 'opportunity' refers to the presence of an environment conducive to fraudulent behavior. For example, situations where specific tasks or authority are concentrated in one person, making oversight difficult, or where internal control systems are weak, fall under this category. To eliminate these situations, measures such as task division, mutual checks and balances, periodic audits, and enhanced security are necessary.
Second, 'motivation and pressure' represents situational factors that compel individuals to engage in fraud. For instance, situations where individuals feel compelled to resort to dishonest means due to excessive workload, performance pressure, or financial hardship fall under this category. To prevent this, company-wide efforts such as assigning appropriate workloads, establishing a fair performance evaluation and compensation system, and providing employee counseling are necessary.
Third, 'rationalization' refers to the justification of fraudulent behavior. Rationalizations like 'competitors do it too,' or 'this level is acceptable' can lead to the normalization of fraudulent actions. To address this, ethics education, the establishment of a transparent communication system, and the fostering of a fair corporate culture are necessary.
To prevent internal fraud within a company, multifaceted efforts are needed to eliminate the three elements of opportunity, motivation, and rationalization. Strengthening internal control systems, operating transparent human resource systems, and establishing an ethical corporate culture are all essential comprehensive measures. Prevention is the best way to minimize the damage caused by fraudulent actions.