Tuesday, November 2, 2010

The fraud triangle

Another piece from James Ulvog's blog (see previous post), in which Ulvog explains the fraud triangle to laypeople. So, what is the fraud triangle? Ulvog begins with a comparison to another 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.

Using that same mode of thinking, Ulvog describes the fraud triangle:

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.

For example, in an earlier post (sourced from Ulvog) about church embezzlement, the embezzler justified her actions by believing that she could pay the money back. But when you embezzle over $100,000, that becomes rather difficult to do.

Ulvog goes into much more detail about the fraud triangle. I encourage you to read his post.
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