What are the components of the fraud triangle?

The components of the fraud triangle consist of three essential elements: perceived pressure, perceived opportunity, and rationalization for the fraud. This model is widely recognized in the field of fraud examination as it helps in understanding why individuals commit fraud.

Perceived pressure refers to the motivations that might drive an individual to commit fraud, such as financial difficulties, addiction problems, or personal issues that create a sense of urgency to alleviate their situation.

Perceived opportunity is the second element, which indicates that for fraud to occur, an individual must believe they have the means to commit the fraudulent act without getting caught. This can stem from a lack of internal controls, weak oversight, or access to funds or resources.

Rationalization is the final component, where the individual justifies their fraudulent behavior to themselves. They create a narrative that makes their actions seem acceptable, whether by believing they deserve the money or that the company can afford the loss.

Understanding these three components is crucial for fraud prevention strategies, as addressing any one of them can reduce the likelihood of fraud occurring. By focusing on the overall context of the fraud triangle, organizations can implement controls and training aimed at mitigating pressures, eliminating opportunities, and influencing rationalizations.