What are the three sides of the Fraud Triangle?

The Fraud Triangle is a well-recognized model that explains the factors that lead to fraudulent behavior. The three sides of the triangle include Pressure, Opportunity, and Rationalization.

Pressure refers to the motivating factor that drives an individual to commit fraud. This could stem from financial difficulties, personal problems, or the desire to meet performance goals that seem unattainable. When individuals feel significant pressures, they may become more susceptible to engaging in unethical behavior.

Opportunity is the second component of the triangle and represents the ability for individuals to commit fraud. This often relates to weaknesses in internal controls, lack of oversight, or an environment where fraud is not monitored effectively. The presence of opportunity makes it easier for someone to carry out fraudulent activities without getting caught.

Rationalization is the cognitive process through which individuals justify their actions. This allows them to reconcile the unethical behavior with their self-image. A fraudster might convince themselves that their actions are acceptable due to various reasons, such as believing they are owed something or that the organization is unfair.

Understanding these three components is crucial for internal auditors and fraud examiners, as it provides insight into how fraud can occur and highlights the importance of strengthening internal controls to mitigate each aspect of the Fraud Triangle.