May 11. 2011 | Dave Welch
The Fraud Triangle and Your Company
The Fraud Triangle contains the three elements that are typically present when a fraud occurs. The three elements of The Fraud Triangle are Motive, Opportunity, and Rationalization.
Motive (also sometimes referred to as pressure) is the reason that an employee will commit fraud. Possible motives might include significant personal financial strain, a potential drug or alcohol addiction, or pressure to maintain a lifestyle out of the employee’s reach. Or there could be stress to reach sales goals or other internal benchmarks. Sometimes the motive is simply greed or revenge.
Opportunity is the situation that exists that gives the employee the ability to commit the fraud. This is often because of poor or nonexistent internal controls, abuse of power or authority by the employee, or lack of management oversight. Opportunity is the one leg of the fraud triangle that the company can largely control.
Rationalization is the employee’s justification for their actions. Examples for rationalizing include situations where an employee feels that they are not fairly compensated or are not treated fairly, or believe that something more is owed to them by the company.
It is important for business owners and management to understand the fraud triangle and how to take the proper steps to break it. Please contact our office for more information on the fraud triangle and how to protect your company from fraud.
Comments (0) »