“When you lock things up … you don’t sell as many of them. We’ve kind of proven that pretty conclusively.” These were comments from the
CEO of Walgreens regarding its anti-shoplifting strategy in the early weeks of January 2025. While this observation refers to a specific retail challenge, it prompted a deeper reflection on the findings of my research study on fraud in another global retail chain store. With that, a question came to mind: What if the largest enabler of fraud was an executive who believed they were doing the right thing for the business?
Fraud is not always committed with malicious intent. Sometimes, it is rationalized, by senior leaders no less, as a necessary compromise to survive in a competitive marketplace. When commercial pressures intensify, the moral clarity that underpins anti-fraud work can begin to erode. What is left is a culture where small infractions are tolerated, oversight is deprioritized and ethical concerns are reframed as inefficiencies.
When Fraud Becomes a Business Strategy
Lean, agile and streamlined operations are now seen as markers of high-performing organizations. But in such environments, controls are often minimized, responsibilities blurred and accountability diluted, mostly in the name of efficiency.
In one case study, senior managers rationalized recurring refund fraud and inventory discrepancies as a “cost of doing business.” Thus, because the amounts were individually small and resolving them would introduce “friction” into the customer experience, they were not treated as fraud at all. Losses were absorbed, not investigated. The organization had developed a silent tolerance for fraud, provided it did not upset performance metrics.
From a counter-fraud perspective, this is alarming. When leaders reframe unethical conduct as strategic or commercially justified, fraud ceases to be treated as a breach. Instead, it becomes an acceptable operational reality.
Understanding Rationalizations Through Neutralization Theory
To understand how fraud becomes normalized in organizations, we turn to
neutralization theory, a framework developed by sociologists Sykes and Matza. This theory, which was originally used to explain juvenile delinquency, outlines how individuals justify deviant behavior without seeing themselves as wrongdoers. In a corporate context, especially at leadership levels, these techniques are often present and institutionalized. Here is how they are likely to play out:
1. Denial of Responsibility
“We had no choice. With limited staff and budget constraints, we had to cut corners.”
With such statements, leaders absolve themselves of agency by blaming external pressures or systemic limitations.
2. Denial of Injury
“It’s minor. These claims barely move the needle financially.”
In this instance, fraud is downplayed as harmless, especially if it does not cause immediate, visible damage.
3. Denial of Victim
“No one’s really being hurt. These are just technicalities.”
Here, victims, whether internal or external, are abstracted or dismissed.
4. Condemnation of the Condemners
“These auditors don’t understand how business works.”
In this case, watchdogs, stewards and critics are painted as naive, bureaucratic or disconnected from commercial reality.
5. Appeal to Higher Loyalties
“We did it for the team. This keeps the company alive.”
With this technique, ethical breaches are reframed as sacrifices made for a greater organizational good.
Each of these rationalizations helps leaders maintain a self-image of integrity, even if they permit or ignore unethical conduct. The result is a workplace culture where fraud is no longer something to be prevented, but something to be managed and tolerated.
Cultural Red Flags and What CFEs Can Do
To mitigate this problem, fraud professionals must work with the awareness of detecting unethical acts and decoding the narratives that are used to excuse them. Here are some red flags to watch for in leadership discourse:
- Language that minimizes misconduct: Phrases like “it’s just the cost of doing business” or “we can’t police everything.”
- Overuse of performance rationales: These are ethical concerns framed as impediments to growth or speed.
- Discrediting of oversight functions: Internal audit, compliance or whistleblower channels are dismissed as disruptive.
How Can CFEs and Internal Auditors Respond?
- Document Rationalizations: Include them in audit reports and fraud investigations as indicators of cultural risk, not just behavioral anomalies.
- Use Cultural Audits: Go beyond process reviews. Explore how ethics are discussed and prioritized, or deprioritized, within leadership teams.
- Reframe the Conversation: Instead of focusing solely on policy breaches, spotlight how unchecked rationalizations weaken long-term resilience, reputation and stakeholder trust.
- Engage Leadership with Data and Values: Show that ethics and efficiency are not mutually exclusive. Use fraud loss data to connect integrity with sustainability.
Fraud is not always hidden. Sometimes, it is rationalized in full view. In organizations that prioritize efficiency, neutrality becomes a shield, controls can be seen as optional and oversight may be treated as obstruction. Those who question these assumptions are dismissed as disconnected or “too idealistic.”
