Fraud happens when the ‘fraud triangle’ is present

This will be the first in a series of on what accountants call the fraud triangle.

Just a few comments before we begin.  These posts will be written in a more casual style that you would usually see from an accountant.  They will definitely be more casual than you have seen in my published resources, which you can find here. When this series of posts is nearly finished, I will start compiling them into a ‘page’ on this blog so you can read them in sequence, instead of the reverse order from when they were written.

What is the fraud triangle?

Think back to your Boy Scout or Girl Scout days.  Do you recalled the fire triangle?  That is the description of what is necessary for fire to exist and continue.  You need to have fuel, oxygen, and heat to have fire.  To put out a fire (or more to the value of this analogy, to prevent a fire) you need to remove one of those three sides to the triangle.  You could stop the fire by removing the fuel or removing the oxygen. You could also remove the heat to prevent or stop a fire.  Do you know why a heavy stream of water sent into a burning room works so well to extinguish the fire?  When the water hits the flames some portion of it boils into steam.  When water turns to steam it expands tremendously.  The steam crowds out the oxygen.  It also absorbs a tremendous amount of heat.  A good stream of water into an enflamed room shuts down the fire really fast.

That is a powerful analogy for fraud.  There are three sides of a fraud triangle, all of which need to be present for fraud to take place.  You can tremendously improve your odds of preventing a fraud by removing some of the sides of the triangle, which consists of:

*opportunity– the ability to do something wrong

*motivation–an incentive (or pressure) to carry it out

*rationalization –the self-deception to believe it is actually okay.

We will discuss these in more detail

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