Beyond the Fraud Triangle: A New Theory of Why Organisational Fraud Happens

Chris Freeman from Public Sector Fraud Authority and the University of Portsmouth, closed Counter Fraud 2026 with a session from a different angle: his doctoral research into fraud theory. Stepping outside his day job, Freeman made the case that the Fraud Triangle - the framework that has underpinned counter fraud thinking for decades - is insufficient for understanding organisational fraud, and shared the emerging model he is building to replace it. Here is a summary of what he said:

What the Fraud Triangle actually is, and where it came from

Freeman began with the origins and inherent limitations of the Fraud Triangle, which are less well known than the model itself. Donald Cressey, published his book, Other People's Money in 1953. This detailed Cressey’s hypothesis that certain conditions tended to be present where someone had resorted to embezzlement: an unshareable financial problem, the opportunity to resolve it by violating a position of trust, and the ability to rationalise that conduct. This was later turned into the familiar three element ‘fraud triangle’ by others: pressure, opportunity and rationalisation.

Freeman was very respectful of Cressey's work but direct about its limitations as a general theory of fraud. The sample was 133 individuals, all male, all in prison, all convicted of embezzlement in the 1940s. But, he contends, we cannot reliably generalise from that to a universal explanation of fraud.

Cressey’s book also says very little about what can be done to address fraud: he makes clear that it cannot simply be a matter of removing opportunities, as organisations always require some degree of trust in order to function, but trust is always open to abuse.

Towards a new theory

There are plenty of theories on why people commit fraud that have tried to build upon the foundations laid by Cressey: the Fraud Diamond, the Fraud Pentagon, the Fraud Hexagon and beyond. But almost all of it still focuses on individual behaviour: why might a person commit fraud? Surprisingly few are based on substantial research programmes, instead tending to be theoretical, drawn from subjective experience or a small number of case studies. Very little research examines fraud in an organisational context; the structures, systems and policies of organisations that creates the conditions in which fraud occurs.

Freeman's research deliberately takes a different approach, subtly shifting the question from ‘why do people commit fraud?’ to ‘why does fraud happen?’. In an organisational fraud context this knowledge has the potential to be much more useful in addressing the fraud problem. While there are some things that can be done to try to deter people from committing fraud, and building an organisational culture that makes the rationalisation aspect more difficult, it is easier to effect change in the systems and processes that make it possible for fraud to be possible. That reframing - from individual moral failing to systemic affordance - is at the heart of the model he is building.

His starting point was the Fraud Field Theory, developed by a group of experts at the University of Portsmouth as a way to explain the rise in fraud. This uses the concept of a threat fi eld (the forces generating fraud opportunities) interacting with a safeguard fi eld (the controls organisations, policies and other measures put in place to counteract the threats.

Based on his research, incorporating elements of systems thinking and complexity theory, Freeman modified the Fraud Field to instead show how opportunities for fraud are created by the interactions within the Fraud Field. The original Fraud Field was a good explanation for levels of fraud observed (i.e. where fraud has happened) whereas, Freeman contends, his modified version foregrounds fraud opportunities, which is a more useful model for understanding organisational fraud risks than the individual-level Fraud Triangle. It also captures the fact that what happens outside of the Fraud Field shapes what is inside it and vice versa. This recognises that there are things outside of the control of the organisation that are still influential, such as wider economic circumstances increasing demand for financial support, or restrictions on budgets that limit what resourcing is available to prevent or detect fraud.

The practical implications of these changes are important. If we view fraud primarily through the lens of detected cases - prosecutions, sanctions, press coverage - we
are working from a very small slice of what is actually occurring. This limits our understanding of the whole problem.

The Fraud Iceberg model is already used to illustrate that much fraud goes undetected. But Freeman extends this further: the fraud that is occurring is a subset of what could occur: there will be opportunities for fraud that nobody has yet noticed, and changes within organisations, such as new processes and procedures, plus tools and techniques available to criminals constantly change what is possible. This supports the modern counter fraud approach which is built around the identifi cation of fraud risks rather than operating in a more reactive way.

Insights from new research methods

Freeman’s research has continued to build on this idea, using computational modelling as a novel research method to uncover more about fraud. In these simulations thousands of virtual agents interact within a constructed environment, allowing mechanisms that are normally hidden to become visible and therefore available for analysis.

In one set of experiments he tested whether larger organisations might experience disproportionately more fraud than smaller ones. He found that the relationship is more complex and dynamic than a simple linear model would suggest, with larger organisations in the simulation experiencing much more fraud due to a contagion effect.

A second set of experiments tested five different control regimes ranging from maximum investment in prevention to maximum investment in detection, to see which was better at reducing fraud. Unlike in the real world, where it is very hard to reliably evidence how effective deterrence and prevention activity is, the computer model renders everything visible.

The prevention-heavy approach produced signifi cantly better outcomes across all three measures, following a consistent and clean relationship as the balance shifted from detection towards prevention. The mechanism is intuitive in retrospect: successful detection deters fraud when it works, but where detection is imperfect, unsuccessful attempts at detection can actually increase fraud propensity by creating a negative social norm - the implicit message that fraud is not effectively caught.

The modelling provides, for the first time, a computational evidence base for what practitioners have long argued: prevention produces better outcomes than detection-led approaches. The challenge has always been demonstrating that. Agent-based models offer a way to do it by making the normally invisible mechanisms of fraud dynamics directly observable. It may even offer a way of testing future counter fraud tools to see how well they might work in the real world.

Where this leads

Freeman's conclusions were offered carefully: he is not proposing to discard the Fraud Triangle. The individual-level theories are a real and valid layer of explanation, but they are not suffi cient on their own for understanding organisational fraud. What he is building around them is a more holistic model: one that situates individual behaviour within the systems and structures that generate the conditions for it.

For those working in counter fraud he suggests that his version of the Fraud Field should be the cornerstone of explaining organisational fraud to others, rather than the fraud triangle. This is because it allows audiences to appreciate how the organisation can practically manage fraud through being aware of how opportunities for fraud arise. This meets the objective of moving them away from ‘why do people commit fraud?’ to ‘what can I do about fraud in this organisation?’.

His closing call was for greater collaboration between practitioners and academics. Fraud remains partly hidden, and the methodologies to illuminate it - agent-based modelling, better fraud measurement, fraud risk assessment frameworks - are improving. But these tools need to be coupled with better theory. Theory should inform practice, and practice should inform theory.

Freeman invited anyone interested in his work to view them here, via Google Scholar. There are four papers in print (with another in peer review), and all are open access.