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Daily Fraud Fact: The Fraud Triangle


Fraud Triangle

When can fraud occur?

For a fraud to occur, experts believe three things must exist: pressure, rationalization, and opportunity. They call this the fraud triangle.

Pressure

Many people who commit fraud are not career criminals and are often trusted staff. According to the Association of Certified Fraud Examiners (ACFE) 2016 Report to the Nations on Occupational Fraud and Abuse, almost 95% of fraudsters are first-time offenders who do not perceive themselves as criminals or even as unethical. Usually, something in the person’s life motivates or prompts them to commit fraud. The pressure could be lifestyle-related, such as lavish spending or addiction problems, or could be outside the person’s control, such as a family member’s catastrophic illness or job loss.

Rationalization

For fraudsters to continue to function in the workplace, they must be able to justify or rationalize their actions. Rationalization varies from person to person, but could include:

“I don’t get paid what I am worth!”

“I intend to pay it back later.”

“Everybody else is doing it.”

“It’s for the good of the agency.”

Opportunity

Opportunity, real or perceived, is the ability to commit the fraud without detection. Ineffective or absent internal controls allow people to believe they can commit fraud and will not get caught. Management can do little to control employee pressures or rationalization. As a result, organizations have the best chance of decreasing fraud by minimizing opportunities through strong internal controls.

Fraud Can Happen Here

Most employees would never consider committing fraud. However, the fraud triangle suggests anyone with a combination of sufficient pressure, an ability to rationalize dishonest acts, and the opportunity to commit and conceal misconduct is at risk of committing fraud.

Check back tomorrow when we will talk about internal controls.

Thanks for your commitment to helping prevent fraud in Minnesota State Government.

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