Page 6 - Risk Management Bulletin Jan- Mar 2021

RMAI BULLETIN JANUARY TO MARCH 2021

clarification of it needs to take account of various What is "Fraud Triangle"
aspects.
When studying the risk of fraud, auditors often
mention to the "Fraud Triangle", explained first by
Looking from the fraudster's perspective, it is
sociologist Donald Cressey. The "Angles" of the Fraud
necessary to take account of:
Triangle are made up of three features which are
X motivation of potential offenders existent for fraud:
X circumstances under which individuals can justify
their potential crimes away The Fraud Triangle:
A framework for spotting high-risk fraud
X opportunities to commit crime(s)
situations
X perceived suitability of targets for fraud
Pressure
X technical ability of the fraudster
Financial or emotional force
X likely and real risk of discovery after the fraud has
pushing towards fraud
been carried out
X expectations of consequences of discovery
(including non-penal consequences such as job FRAUD
loss and family stigma, proceeds of crime
confiscation, and traditional criminal sanctions) Opportunity Rationalization
Ability to execute Personal justification
X actual consequences of discovery.
plan without being of dishonesh
There are different views on why do people commit caught actions
Frauds. As per researcher Tommie Singleton, PhD,
Fig: 2 - Fraud Triangle
University of Alabama:
Steve Albrecht in his book Fraud Examination further
Some individuals are honest all of the period. gives details on reasons behind occurrence of:

Some individuals are dishonest all of the period. A) Pressure factors:
o Individual financial influences that may lead
Most individuals are honest some of the period.
to fraud:
Some individuals are honest most of the period. 1. Financial difficulties (33%)
a. High personal debts or financial
losses
b. Inadequate income
2. Living beyond one's means (44%)
o Individual conducts that may lead to fraud:
1. Broad stock market or other types of
speculation (starting a new business)
2. Extensive gambling
3. Illicit affairs
4. Excessive use of alcohol or drugs (12%)
B) Opportunity factors:
1. Magnitude of fraud would decrease if the
opportunity did not exist:
a. Reasons for increased fraud risk:
i. Crime requires a simple act
ii. Chances of being detected are very
Fig: 1 - Why Do People Commit Frauds slim

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