The “Fraud Triangle” is a term that is commonly used by anti-fraud professionals to highlight the three circumstances which exist in most fraud occurrences. Those facets are: financial pressure, opportunity, and rationalization. The idea is that if a person, 1) experiences pressure to need or want more cash, 2) feels he has the opportunity to steal and not get caught, and 3) rationalizes that it’s okay to do the stealing, then there’s a good chance he’ll do it.
My experience as a professional accountant and fraud examiner has taught me that leaders of organizations, especially smaller ones, are not aware of how vulnerable their organizations are to various forms of fraud. It’s not uncommon to hear a business owner or nonprofit executive say something like, “My controller or bookkeeper would never steal from us. I trust her completely.” If you tend to think this way, consider these sample answers to the “Embezzlement: Who, When, Why?” questions:
- Who: An otherwise “honest” person, experiencing serious financial problems.
- When: When there’s little chance of detection…due to weak controls.
- Why: They rationalize by saying, “It’s not that much; I’ll pay it back.”
If you want to learn more, The Association of Certified Fraud Examiners (ACFE) provides a detailed description of the Fraud Triangle. In addition, from their website you can download free resources about fraud prevention.