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Chapter #1 – Fraud Triangle and how internal control can prevent, deter, and detect fraud.
The fraud triangle consists of three theories that are present when fraud occurs. All three
pieces of the triangle are somewhat intertwined to connect fraud, but each section of the triangle
has distinct attributes. The philosophy on top of the triangle labeled perceived pressure.
Pressures usually stem from one’s lifestyle choices or personal issues. This theory of the triangle
gives the individual a motive to commit fraud. Second leg of the triangle, perceived opportunity,
creates the chance that one could find an opening where they could commit fraud and escape the
consequences. Internal controls are a significant factor in opportunities available for individuals
contemplating committing fraud. Completing the triangle is rationalization. According to the
2008 ACFE report, individuals who commit fraud are less likely to have committed a crime in
the past (Kranacher, Riley, and Wells, 13). This 2008 AFCE report show individuals think
differently, in how they justify the crime (Kranacher, Riley, and Wells, 13). All three theories are
equally important in controlling fraud risks.
Internal controls are a very important factor in the opportunity piece of the triangle.
When internal controls and proper procedures are in place, perceived opportunities are
nonexistent. The perception of detection states, “Employees who perceive that they will be
caught are less likely to engage in fraudulent conduct” (Kranacher, Riley, and Wells). For
example, when multiple individuals are involved in the depositing of funds, it is less likely that
an individual would think they could get away with taking money out of the deposits. Small
