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The Triangle of Fraud Risk

ECS Article - The Triangle of Fraud Risk

A 2014 Global Fraud Study conducted by the Association of Certified Fraud Examiners (ACFE) estimates that the average business loses five percent of their revenues to fraud. The global total of fraud losses is $3.7 trillion. The median fraud case goes 18 months before detection and results in a $145,000 loss. How can you avoid being a fraud victim? The Fraud Triangle

The first step is to become more aware of the conditions that make fraud possible. The fraud triangle is a model that describes three components that need to be present in order for fraud to occur.

  1. Motivation (or Need)

  2. Rationalization

  3. Opportunity

When fewer than three legs of the triangle are present, we can deter fraud. When all three are present, fraud could occur. Motivation Financial pressure at home is an example of motivation to commit fraud. The fraud perpetrator finds him or herself in need of significant cash due to any number of reasons: poor investments, gambling, an extravagant lifestyle, health care costs, family requirements or social pressure. In short, the person needs money, and fast. Rationalization Those who commit fraud may rationalize the act in their mind:

  • I’m too smart to get caught.