The Fraud Triangle

The fraud triangle consists of 3 theories that are present when fraud occurs. All three pieces of the triangle are somewhat intertwined to connect when fraud in present, but each section of the triangle has distinct attributes. The theory on the top of the triangle is labeled as perceived pressure. These pressures usually are originated from one’s lifestyle choices or personal issues. This theory of the triangle gives the individual a motive to commit fraud. Perceived opportunity creates the chance that one could find an opening where they could commit fraud and escape the consequences of being caught. Internal controls can play a big role in whether or not the opportunity presents itself for individuals to risk committing fraud. Completing the triangle is rationalization. According to much research many individuals who commit fraud have never committed a crime before and think differently than one who has. In many cases, there is a thought process behind why one would think it is acceptable to commit fraud which then again involves the human element.

Internal controls are very important in whether an individual would contemplate committing fraud. When internal controls and correct procedures are in place, perceived opportunities are less existent. The perception of detection states that “employees who perceive that they will be caught are less likely to engage in fraudulent conduct”. For example when there are multiple individuals that are involved in the depositing of funds process in a lower level setting, it is much less likely that someone would think they could get away with taking money out of the deposits. An example of someone who collects the money, counts the cash, and also does the deposit themselves would be more likely to take money out of the deposit that no one else would know about. Proper internal controls play a big role in the processes in the lower level settings. Small business can run into this issue more than a large business would, according to the study that businesses with less than one hundred employees consist of