Question

Discusses how an organization should incorporate the learning's of the fraud triangle to reduce the risk of fraud/misconduct within their organization. Your recommendations should include programs and controls designed to impact all three elements of the triangle (pressure, opportunity, rationalization). Please make sure to include the role leaders play in reducing fraud risk.

Answer 1

Since the inception of the audit, the basic concepts in fraud deterrence and detection is the unfolding of the ‘fraud triangle’.

Having control through the three key elements in the fraud triangle are opportunity, motivation, and rationalization, can reduce the fraud element from the organisation.

Opportunity to do fraud is the element over which business owners have the most control. Limiting or no opportunities for fraud is one way a company can reduce it.The manager has to check that there should not exists any opportunity or lose-poll to commit fraud. It is mostly possible when employees have direct access to assets and secrets of the business and other precious and important information that allows them to both commit and conceal the fraud to be get disclosed.

The another angle of the triangle is “Motivation” which says that there exists a pressure or required needs on the person who commits fraud. So, the managers has to seen that no employee of the department should in any kind of pressure to fulfil any kind of needs. The need may be financial or other type like debts, which will tempt the employee to commit fraud. The employee has no intention to do any fraud but the needs comple him/her to do fraud, so that his/her needs got fulfulled.

The last angle of fraud commitment is “Rationalization” which says that employees may rationalize their behavior by pin-pointing or determining that the committing fraud is correct for a variety of reasons. The dishonest employees are probably easier to rationalize a fraud and they find it very correct and no harm in it. But those employees who have high moral, respect and standards, wouldnot find a proper rational to do fraud and find it very difficult and do it with providing some excuse to themselves. The managers have to keep eyes on the employees behaviour and their attitude to detect any fraud happening. The proper remuneration and time-to-time encouragement would be a good media to keep employees and their needs satisfied.

Thus, Business owners and the managers must take control of fraud by working on the various elements of fraud triangle to detect fraud happeings.

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