Informing the fraud triangle: Insights from differential association theory

Abstract:  The fraud triangle (FT) has been criticized by scholars and practitioners for not being thorough enough to include every occurrence of fraud. However, not every case of fraud can follow the FT and the problem might have been one of interpretation. The purpose of this paper is to lend support to the fraud triangle (FT) by expanding on the understanding of differential association theory (DAT). Sutherland’s work on DAT is a major source to inform our understanding of the FT. The return to his work is intended as a clarification of what Sutherland actually says with respect to the FT and a critical assessment of how far his work can be regarded as being authoritative. To accomplish this task, the paper provides anecdotal evidence from three high-profile accounting fraud cases – Livent, WorldCom, and Enron. The findings reveal that the concepts and propositions of DAT do have the potential to expand our understanding of the FT concepts. DAT seeks to explain the content and process of corporate accounting fraud via sub-culture and specific techniques in which criminal behaviour is learned. Practically, the paper contributes to a wider body of literature that expounds on the value to further develop fraud theories to inform fraud detection and prevention.