Why Employees Commit Fraud

Employee fraud is one of the most pressing risks faced by organizations today — regardless of industry or size. From misappropriation of assets and payroll fraud to financial statement manipulation, fraudulent behavior can lead to significant financial losses, reputational damage, and a breakdown of trust within the workplace. But why do employees commit fraud? The answer often lies at the intersection of psychology, opportunity, and workplace culture.

Understanding the Fraud Triangle

To understand the motivations behind employee fraud, we turn to the Fraud Triangle, a well-established model developed by criminologist Donald Cressey. The triangle outlines three key factors that must be present for fraud to occur:

1. Pressure
   This refers to the motivation or incentive to commit fraud. Employees may be under personal financial strain, facing mounting debts, or experiencing lifestyle pressures that push them toward unethical choices.
2. Opportunity
   When internal controls are weak or oversight is lacking, employees may see a chance to commit fraud without being caught. Poor segregation of duties, lack of audits, and unchecked access to assets create the ideal environment for fraudulent behavior.
3. Rationalization
   Most individuals do not see themselves as criminals. They justify their actions through thoughts like, “I’m just borrowing the money,” or “I deserve this because I’m underpaid.” Rationalization allows the fraudster to maintain a sense of integrity while engaging in misconduct.

Factors That Contribute to Fraud

Beyond the Fraud Triangle, several additional factors can increase the risk of employee fraud within an organization:

1. Toxic Workplace Culture

A culture that prioritizes results over ethics, tolerates unethical behavior, or fails to hold employees accountable fosters an environment where fraud is more likely to occur. Employees take cues from leadership — if misconduct is overlooked at the top, it will be mirrored below.

2. Lack of Internal Controls

Insufficient checks and balances such as missing approval processes, poor record-keeping, or failure to review transactions can give employees both the means and confidence to commit fraud.

3. Job Dissatisfaction or Resentment

Employees who feel undervalued, mistreated, or underpaid may commit fraud as a form of retaliation or self-compensation. Disengagement is often a precursor to ethical lapses.

4. Unrealistic Performance Targets

When performance metrics are overly aggressive, employees may resort to fraud to meet expectations. This is especially common in sales-driven environments or roles tied to financial incentives.

5. Lack of Awareness or Training

Some employees engage in unethical behavior without fully understanding the consequences. When organizations fail to educate staff about fraud risks, detection methods, and disciplinary action, it sends a message that such behavior may go unnoticed or unpunished.

6. Financial or Personal Crises

Sudden life events — such as medical emergencies, divorce, or addiction — can place unexpected financial pressure on employees, increasing the temptation to commit fraud as a last resort.

Prevention Begins with Culture and Controls

While it may not be possible to eliminate fraud entirely, organizations can significantly reduce the risk by building a strong ethical culture and implementing robust internal controls. Clear reporting channels, regular audits, whistleblower protections, and ongoing ethics training are all essential strategies.

Most importantly, leadership must lead by example — transparency, fairness, and integrity at the top create a ripple effect throughout the organization.

Conclusions

Employee fraud doesn’t happen in a vacuum. It stems from a complex web of personal and organizational factors. By understanding why employees commit fraud, businesses can take proactive steps to protect their people, their reputation, and their bottom line.