Fraud Triangle: Things You Should Know

The fraud triangle is one of the oldest and most basic concepts in fraud detection and prevention. While researching his doctoral thesis in the 1950s, criminologist Donald R. Walker explained the theory in his dissertation. Fraud triangles are a theory that stresses the importance of opportunity, motivation, and rationalization for why people commit fraud. It is by far the most controllable element for business owners to determine their opportunities. The best way for a company to reduce fraud is to limit its opportunities for

Opportunity to commit fraud

As a result of the ordinary course of their jobs, employees are given access to documents and valuables that can be used for fraud. Employees can both commit and conceal fraud when they have access to information and assets. Due to the access people have over the years, there is also the possibility of fraud happening. Managers are responsible for a broader range of employees and functions both inside and outside the company. Therefore, they have more access to companies, as well as greater control over certain functional areas. A user must be permitted to access only the systems, information, and assets that are necessary for him or her to accomplish their jobs.

Motivation to commit fraud

The purpose of fraud, the third element of the fraud triangle, is to deceive by giving the target a sense of pressure or need. This may be a real financial need, or it might just be owing money for a debt or medical bill. An individual may perceive a need for material goods without the means to obtain them, such as a man with a desire for material goods but no access to It is possible for motivators to be non-financial as well. The pressure to achieve good results at work or the need to cover up someone’s poor performance may be high. Gambling addictions and drug addictions can motivate someone to commit fraud as well.

Rationalizing the fraud

It is possible for employees to justify this behavior by deciding committing fraud is not a good idea because of a number Those with a low moral code of conduct might find it easier to justify a fraud. Those with a higher moral standard, on the other hand, might find it more difficult. To convince themselves that fraud is okay with “excuses”, they must feel that they are being justified in In addition to making up for being underpaid and replacing a bonus that was deserved but wasn’t received, rationalization is also used for compensating for underpayments. It is possible that the thief tells himself that he is just borrowing money from the business and will repay it Em thieves tell themselves the company doesn’t need the money or won’t miss the stolen assets if the money isn’t taken. Some people are of the opinion that the company deserves to lose money because of the bad acts made Rather than focusing on the fraud triangle, executives and business leaders should target the part of the fraud triangle they have the most control over Providing employees with limited opportunities for fraud will reduce to some extent their likelihood of committing fraud. Although it is difficult for management to change an employee’s attitude, it is possible to limit the likelihood of fraud by limiting employee needs or reasonings.

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