Dan J. Harkey

Master Educator | Business & Finance Consultant | Mentor

Inside America’s “Culture of Fraud” Part II of III

— and How to Reverse It in 2026

by Dan J. Harkey

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Summary

“The Fraud Tolerance Economy: How Misconduct Became a Standard Business Practice.”

A direct quote from President Trump: If we got rid of 50% of the fraud in our system, we would have a balanced budget.  That does not count the waste, abuse, and misallocations of money based on the entrenched bureaucratic deep state. 

When performance at any cost becomes the unwritten rule, misconduct stops looking like misconduct.  In 2026, the most dangerous risk in American enterprise isn’t only a single fraud—it’s a culture that makes many frauds thinkable, and the increased percentage of people willing to engage in fraudulent behavior.  Fraudulent behavior becomes the norm rather than the exception.  This feature examines the drivers, costs, and a practical playbook to build an anti-fraud culture that lasts.

What We Mean by a “Culture of Fraud”

A culture of fraud is an organizational environment where unethical behavior is normalized, rationalized, or even subtly rewarded to meet aggressive goals.  Decades of research began with the Fraud Triangle—pressure, opportunity, and rationalization—and has expanded to include capability (“Fraud Diamond”) and arrogance/collusion (pentagon/hexagon), underscoring that misconduct flourishes when incentives, weak controls, and personal power align.

Equally important is how norms collectively shift.  Recent studies on organizational moral disengagement show how groups can suspend moral judgment—through euphemisms, advantageous comparisons, or diffused accountability—until unethical practices feel “business as usual.”

The Drivers: Why Fraud Becomes Thinkable

1) Intensified pressure and targets without guardrails.

Tying pay and promotion to unrealistic sales or financial metrics is a well-documented risk factor for unethical pro-organizational behavior (UPB)—employees may cheat for the firm when goals and leadership signals corner them.

2) Weak or overridden controls.

The ACFE’s 2024 (Association of Certified Fraud Examiners) global study found that more than half of occupational frauds occur due to a lack of internal controls or override of existing ones—classic “opportunity” conditions.

3) Normalization of misconduct.

Toxic or fearful climates—bullying, high power distance, and low speak‑up safety—make it easier to rationalize corner‑cutting and remain silent.  Ethical leadership reduces bullying and boosts commitment; in its absence, silence and complicity spread.

4) Capability and arrogance.

Large schemes often require a perpetrator with unusual access and skill—and sometimes the hubris to believe they’re untouchable.  That’s why “capability” and “arrogance” were added to classic fraud models.

5) The Cost: Not Just Money—Trust

Direct losses mount fast.

In ACFE’s 2024 Report to the Nations, the median loss per case across 1,921 investigations was $145,000; financial statement fraud remains the least common (≈5%) but costliest category with a median loss of ~$766,000—up sharply from 2022.

6) Consumer fraud is accelerating.

The FTC’s latest data show Americans reported $12.5B in losses to fraud in 2024, a 25% jump from 2023—driven by investment and imposter scams.  Regulators note more people are losing money, not just reporting incidents.

“Small scams” is a significant signal.

At the retail edge, return fraud and policy abuse have become a costly norm.  The National Retail Federation’s 2025 landscape estimates 9% of returns are fraudulent—a reminder that everyday abuses reflect and reinforce a broader “fraud-tolerant” consumer climate.

7) Systemic damage is harder to price.

Fraud undermines investor confidence, brand credibility, and employee morale—and, in a digital payments era, APP scams and deepfakes enable social engineering test consumer trust at scale.

8) What Actually Works: Culture, Tips, and an EFM Backbone

Tone at the top—lived, not laminated-helps leaders inspire trust by modeling zero-tolerance for shortcuts and rewarding integrity, fostering confidence in the organization’s values.

Empower whistleblowers by emphasizing that tips are the most effective detection method—fund, publicize, and protect this vital early-warning system to motivate proactive reporting.

Adopt Enterprise Fraud Management (EFM) systems, per Gartner, that serve as a reliable technical backbone, unifying alerts and analytics to enhance fraud detection and give you confidence in your defenses.

Operationalize “Stop, Call, Confirm.” Create a mandatory out-of-band verification step for wires, vendor banking changes, and high-risk transactions.  Community banks credit simple callbacks as stopping real attempts; large banks publish concrete wire fraud playbooks; some states are authorizing temporary transaction holds to protect elders and other vulnerable account holders.

The 2026 Anti-Fraud Culture Playbook

1)    Reset incentives.

Reset incentives by establishing clear metrics to evaluate the Impact of controls, speak-up responsiveness, and ethical behavior.  Regularly tracking these indicators provides tangible evidence of progress, helping leaders understand what works and fostering confidence in prevention efforts.

2)    Make tips inevitable.

Deploy multi-channel reporting (web, phone, mobile), and proactively address common barriers like fear of retaliation or lack of awareness through training and communication.  Ensuring anonymity and emphasizing protection encourages reporting, making tips a reliable part of your fraud detection system and alleviating concerns about reporting risks.

 3)    Close the control gaps fraudsters exploit.

Mandate segregation of duties, automate exception alerts, and require executive approval for control overrides.  ACFE finds lack/override of controls drives most cases—so treat overrides as events that trigger retrospective review.

4)    Stand up EFM with risk-based analytics.

Integrate payments, customer, HR, and third-party data into your EFM platform; apply behavioral and entity-link analytics to detect rings and collusion that unit-level tools miss.  (That’s the core promise of EFM.)

 5)    Institutionalize “Stop, Call, Confirm.”

For wires, vendor file changes, and high-value refunds/returns, callbacks must be made to verified numbers on file, not to the numbers in the request.  Pair withhold authority where Law allows to protect vulnerable clients.  Train frontline staff to pause rather than process under pressure.

 6)    Attack normalization head-on.

Ban euphemisms that launder harm (“smoothing,” “market stabilization”).  Run workshops on moral disengagement so teams can spot rationalizations in real time; rotate leaders to reduce local echo chambers.

 7)    Pressure‑test the numbers.

Use industry and non-financial benchmarks to interrogate outlier performance before it calcifies into misconduct; research shows that industry-based analytics outperform internal prior-year comparisons at surfacing revenue fraud risk.

8)    Protect the customer edge.

Retailers: tighten returns risk scoring and ID verification where abuse is prevalent, but pair controls with friction‑right customer journeys; NRF/Hoppy Returns data show fraud is rising even as convenience drives loyalty.

 Bottom Line

Fraud is not a bolt from the blue; it’s the predictable outcome of pressures we tolerate, controls we bypass, and stories we tell ourselves about “winning.” Build incentives for integrity, make tips easy, verify before you trust, and wire your enterprise to see patterns—but most of all, lead like ethics are a performance metric.

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