Fraud Triangle Analysis

How to Put the Fraud Triangle to Work We keep teaching the Fraud Triangle as a theory. But few teach its practical application. The Fraud Triangle is one of the first concepts students of fraud learn:  •Pressure (the stress that pushes someone to commit fraud)  •Opportunity (the control gap that makes it possible)  •Rationalisation (the justification) But how do you use it in practice? 𝟭. 𝗜𝗻 𝗶𝗻𝘁𝗲𝗿𝘃𝗶𝗲𝘄𝘀 Listen for pressure points: “medical bills, debt, targets.” Spot rationalisations: “everyone does this” or “I’ll pay it back.” 𝟮. 𝗜𝗻 𝗿𝗶𝘀𝗸 𝗮𝘀𝘀𝗲𝘀𝘀𝗺𝗲𝗻𝘁 Map pressure (market downturns, layoffs). Map opportunities (weak controls, ERP overrides). Ask: Who in this environment could rationalise cutting corners? 𝟯. 𝗜𝗻 𝗿𝗲𝗱 𝗳𝗹𝗮𝗴 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀 A sudden lifestyle change = pressure. Single-person control = opportunity. Justifications in emails = rationalisation. Don’t use the triangle only to explain why fraud happened. Use it as a forward-looking lens to predict where fraud could happen next. That’s when the Fraud Triangle stops being theory and starts being a practical tool. #ForensicAccounting #Risk #Fraud #FraudTriangle #ForensicForesight

The recent WSJ article about expense fraud was hard to miss with this title: "Strippers, Christmas Gifts and an RV: Workers Push It With Company Cards." And while most of the frauds detailed in the piece were relatively small time--everything from charging a new designer outfit to the company because the employee's luggage was lost to billing a company for the daily Starbucks run despite there being coffee maker in the office (although one employee did try to buy an RV with a corporate card)--they connect up with another recent story that was anything but small. Two days ago, Macy’s reported that it was delaying the release of its quarterly results after discovering an employee hid up to $154 million of expenses over several years. Apparently, a single employee responsible for "small package delivery expense accounting" made "erroneous accounting accrual entries to hide roughly $132 million to $154 million of expenses from the fourth quarter of 2021 through the [current] fiscal quarter." It's somewhat unclear why the employee hid the expenses--there isn't yet an indication they stole any money or committed fraud for their personal benefit--but here's where the two stories come together. White collar crime isn't often a "crime of passion." No one rushes in to find their spouse in bed with someone else and in a fit of rage commits accounting fraud. Instead, these crimes are recursive. They tend to start small and grow over time. And they tend to begin with someone trying to cover up a professional screw up that would otherwise cause reputational damage. Once they go down the road, it's very hard to turn back and the wrongdoing compounds. So while $154 million in hidden expenses seems a long way from fudging an expense report, they're a lot closer than we think because they likely started with the same notion: it's just a little fib, I'll fix it later. That's why it's so critical to focus our preventative efforts on all sides of the fraud triangle--not just controls (which both articles highlight and most companies prioritize). If we can minimize pressure on employees and root out rationalizations when they arise in addition to reducing opportunities for fraud, we've got a much better chance of catching all these little fibs that waiting to become next $154 million scandal. Link to WSJ article by Callum Borchers: https://lnkd.in/gxy5XJQH Link to AP article by @Michelle Chapman: https://lnkd.in/gHATreJR #whitecollarcrime #corporatecrime #fraud #fraudtriangle #whygoodpeopledobadthings

🌟 Day 6: 30 Days to Audit Brilliance 🌟 Today, let’s dive into the Fraud Triangle, a powerful model that helps us understand the factors leading to fraudulent behaviour. 🕵️♂️🔍 The Triangle comprises three key elements that must converge for fraud to occur: 1️⃣ Incentives or Pressure 💰 This motivates fraudulent actions—financial gain, personal pressures, or the urge to avoid negative consequences. Examples: Meeting unrealistic targets, personal debt, or wanting to maintain a lavish lifestyle. 2️⃣ Opportunities 🔓 These are the conditions within an organization that enable fraud. Examples: Weak internal controls, lack of oversight, or complex organizational structures. 3️⃣ Rationalization 🤔 This is how individuals justify their actions, creating excuses to ease their guilt. Examples: Thinking the organization owes them, viewing fraud as a "victimless crime," or believing it’s necessary to protect the company. The Fraud Triangle shows us that fraud is more likely when all three elements are present. However, their significance can vary based on specific situations. Implications for Organizations: 🔍 Risk Assessment: Regularly identify vulnerabilities and weaknesses. 🔒 Internal Controls: Implement strong controls to prevent and detect fraud. 📚 Employee Awareness: Educate employees on fraud prevention and its consequences. 🌱 Ethical Culture: Foster an environment of integrity to deter fraudulent activities. 📢 Reporting Mechanisms: Provide clear ways for employees to report suspicious activities. By understanding the Fraud Triangle and addressing its components, we can significantly reduce the risk of fraud within our organizations. Let’s create a culture of transparency and accountability! 💪✨ #FraudPrevention #EthicalBusiness #AuditBrilliance #Leadership #Integrity

Understanding the Fraud Triangle: Preventing Occupational Fraud Did you know that occupational fraud costs organizations an estimated 5% of annual revenues? The Fraud Triangle, developed by Donald Cressey, reveals the underlying factors driving fraudulent behavior: 1. Pressure: Financial or personal struggles lead individuals to seek illicit solutions. 2. Opportunity: Weak internal controls or lack of oversight create vulnerabilities. 3. Rationalization: Justifying fraudulent behavior due to perceived injustices or entitlement. Prevention Strategies: - Implement robust internal controls - Foster a culture of transparency and accountability - Encourage whistleblowing and reporting - Conduct regular audits and risk assessments Break the Fraud Triangle: - Recognize pressure points and offer support - Eliminate opportunities through controls and oversight - Promote ethics and integrity Valuable Resources: - Association of Certified Fraud Examiners (ACFE) - American Institute of Certified Public Accountants (AICPA) #FraudPrevention #FraudTriangle #InternalControls #RiskManagement #Compliance #Ethics