Question

What is the fraud triangle and how does a fraud examiner utilize it?

Answer 1

Fraud Triangle-
Fraud Triangle explains the factors that lead to fraud and other unethical behavior
The fraud triangle is a model for explaining the factors that cause someone to commit occupational fraud.
It consists of three components which, together, lead to fraudulent behavior:
1.Pressure on the person	Most individuals require some form of pressure to commit a criminal act. This pressure can be personal.Pressures can include money problems, gambling debts, alcohol or drug addiction, overwhelming medical bills.
2. Opportunity	An opportunity to commit the act must be present. In the case of fraud, usually a temporary situation arises where there is a chance to commit the act without a high chance of being caught.
3. Rationalization	The mindset of a person about to commit an unethical act is one of rationalization. The individual manages to justify what he or she is about to do. Some may think they are just going to borrow the stolen goods, or that they need the money more than the “big” company they are stealing from
The fraud triangle provides help to organizations to analyze their vulnerability to fraud and unethical behavior, and it provides a way to avoid the same. Either of the three elements of the triangle must exist for an individual to act unethically. If a company can focus on preventing each factor, it can avoid the grounds for fraud.
Below are some of the ways by which organisation can utilise Fraud Triangle to avoid fraud.
1. Releive Pressure- Wherever Possible the companies should try to identify the pressure on employees that could imapact the company like Money Problem and help them . Working to reliev these issues can help prevent Criminal Behaviours.
2. Minimise Opportunity - Companies should always be looking to minimize the opportunity for fraud and unethical behavior. Like the companies should analyse their operation, Review the internal Controls.
3. Target Rationalisation - Companies can create a “zero tolerance” policy towards fraudulent behavior, and remind employees and customers of this policy on a regular basis. Companies can also make certain that individuals know the cost of fraud to other customers and other employees. Letting individuals know that there are heavy consequences makes it more difficult to minimize the unethical behavior.
Note-
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