When reviewing the risk of fraud, auditors often refer to the “Fraud Triangle”, first identified by sociologist Donald Cressey. The “points” of the Fraud Triangle are made up of three factors which are present for fraud:

  • Incentive/Pressure Pressure, such as a financial need, is the “motive” for committing the fraud. One common pressure is a gambling problem.
  • Rationalization The person committing the fraud frequently rationalizes the fraud. Rationalizations may include, “I’ll pay the money back”, “They will never miss the funds”, or “They don’t pay me enough.”
  • Opportunity The person committing the fraud sees an internal control weakness and, believing no one will notice if funds are taken, begins the fraud with a small amount of money. If no one notices, the amount will usually grow larger.

In any organization, the risk of fraud can be reduced. Internal control procedures can particularly diminish the “opportunity” point of the Fraud Triangle.

Date this Avoiding Pitfall was most recently published: 04/28/2017