Celebrating 20 Years of the Fraud Diamond: A Retrospective Analysis and Future Perspectives

In a groundbreaking article published nearly 20 years ago, authors David T. Wolfe and Dana R. Hermanson introduced the Fraud Diamond—a revolutionary extension of the traditional Fraud Triangle that delves deeper into the personal characteristics of fraud perpetrators. To commemorate this milestone, the authors have conducted a retrospective analysis of their paradigm-shifting model, reflecting on its impact on practice, industry, and research. Looking ahead, they explore the proactive use of the Fraud Diamond, the implications of highly capable individuals, and what may be missing from the model.

The Fraud Diamond, with its focus on perpetrator capability, has become a widely recognized and utilized tool in the professional community. It has sparked additional research into the components of fraud and has been integrated into various aspects of practice, including fraud prevention and detection strategies. The model’s emphasis on the personal traits and abilities needed to orchestrate fraud has provided valuable insights into understanding and mitigating fraud risks.

In the realm of research, the Fraud Diamond has had a significant impact, with numerous studies exploring its elements and their relationship to fraud occurrence. Findings have highlighted the importance of assessing capability in fraud risk assessments and have underscored the role of highly capable individuals in creating fraud opportunities. The model has also been applied to diverse settings, such as online consumer fraud and student cheating, further demonstrating its versatility and relevance.

As the Fraud Diamond enters its 20th year, the authors raise important questions about its proactive use, the pros and cons of highly capable individuals, and potential enhancements to the model. They emphasize the need to consider the interaction between capability and other components of the model, as well as the impact of remote work on fraud risk assessments. Additionally, they advocate for the inclusion of integrity or ethics as a potential element in the model, addressing instances where all Fraud Diamond ingredients are present but fraud does not occur.

Looking to the future, the authors express hopes for continued impacts in research, practice, and regulation, urging for the incorporation of the capability component into auditors’ assessments of client fraud risk. They also call for the expansion of fraud models to encompass group fraud efforts, organizational culture, and societal norms, moving beyond an individual perpetrator focus.

Ultimately, the Fraud Diamond’s enduring legacy lies in its recognition of fraud as a “people issue,” emphasizing the importance of individual traits and abilities in understanding and combating fraudulent behavior. As fraud continues to pose a significant societal challenge, there remains much to learn about the complexities of fraudulent behavior and the factors that contribute to it.