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FOS Blog

11 May

An Introduction to the Fraud Triangle

An Introduction to the Fraud Triangle

When we see crime in the news, our first inclination may be to wonder what made that individual commit such a crime.  At times we may think, how could one be so naïve to think that he wouldn’t get caught?  It is difficult to get in the mind of a fraudster and relate to the feelings he had when committing the crime; but, in the world of Fraud Examination, there is a tool that can help us make some sense of what led a fraudster to his crime.

This tool is the Fraud Triangle.  With that introduction, you may wonder, what does geometry have to do with crime? And, does this triangle have magic powers that let me see into someone’s mind?  Not exactly.

This commonly used tool was developed by Donald Cressey, an American Sociologist and Criminologist well known for his contributions to the research of white-collar crime.  Cressey explained that there are three major factors that must be present, in some form, for an individual to commit crime: Pressure, Opportunity, and Rationalization.  The average employee may experience one element of the triangle on a regular basis; but, without elements of all three factors present at the same time, the individual will likely not commit fraud.

The first leg of the triangle, pressure, is usually what causes a fraudster to think about fraud initially.  The individual may have some financial difficulties that are unknown to his employer.  This pressure may lead him to look for a way to solve his problem: steal money from a teller drawer, falsify an expense report, or generate a fictitious loan.  Often a fraudster may feel that he cannot share this financial burden with anyone else, and cannot ask for help.

The next leg of the triangle is opportunity.  This is likely the element of fraud that we, auditors and management, have the most control over.  The fraudster must believe that he has an opportunity to make his fraud happen without getting caught, to make it worth the risk.  Strong internal controls are important here.  Management must be aware of control weaknesses, such as a lack of segregation of duties, which give a fraudster the keys to commit his fraud.

The final leg of the triangle, rationalization, is how a fraudster justifies the crime.  Most fraudsters are first-time offenders and do not view themselves as criminals.  They see themselves as good people caught in a tough situation, making the fraud seem like a justifiable act.  Management can lessen the chances of employees rationalizing fraud by ensuring that employees feel appreciated, are fairly paid, and believe their company is honest.

Considering these three elements, management can work to eliminate areas of their organization that may contribute to fraud.  Understanding fraud, and thinking like a fraudster are powerful tools in the fight against fraud!

For additional information contact the author James M. Dailey at