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Understanding Why Fraud Occurs – The Fraud Triangle

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It is often a baffling question how fraud can happen in your organization; and if you?re asking this question, you?re one of the thousands of executives, managers, and business owners who want to find out how and why fraud happens. So how does fraud happen? What contributes to it? What are the signs it could be happening in your organization?

Understand Why Fraud Occurs

There are many reasons for fraud and a lot of factors can contribute to companies and systems being repeat victims of it. What you need to do is to understand these factors so that you can prevent occupational fraud from occurring at your workplace. After all, 5% of your total revenue could be going straight to the pockets of fraudsters!

The above goes to show that you must spare no effort in trying to minimize the risk of fraud and understanding the factors related to it. That?s fraud risk management in a nutshell, and you should take steps to address this matter as soon as you can. So, let?s talk about the Fraud Triangle.

The Fraud Triangle

Developed by the well-known criminologist Donald R. Cressey, The Fraud Triangle helps us understand the rationales and circumstances behind instances of occupational fraud. The triangle is composed of the following:

1 – Opportunity

Nothing would happen if not presented with an opportunity. In fact, normally honest individuals can be seduced to commit fraud if there is an opportunity.

Fraudsters take advantage of weak internal controls, low likelihood of detection, poor security, and lack of clear policy enforcement to abuse or use their position of trust to get some personal gain. All it takes is one weak moment and opportunity!

2 – Motivation or Incentive

Greed and need are the most common motivations for committing fraud. The temptation becomes too great when an opportunity presents itself as well. If pressured, an individual may commit fraud to cover needs to:

  • Pay bills
  • Sustain an addition (such as gambling or drugs)
  • Meet productivity targets in one?s work
  • Afford a better lifestyle and purchase status symbols such as bigger houses and better cars

3 ? Rationalization or Attitude

Yes, even ?nice? people can commit fraud! It all boils down to what they tell themselves to be able to excuse such as act as ?acceptable?. Believe it or not, some very righteous individuals possesses a character, attitude, and set of ethical values that allows them to commit dishonest acts intentionally.

Fraudsters often have a very normal view of themselves and do not consider their actions as wrong, or even bordering on criminal. It is often the case that employees who steal from the company rationalize their acts by reasons such as not getting promoted, not getting a raise, feeling that they are being paid too little, or thinking that their employer ?deserves? to? be fleeced. It is human nature to try to get as much as one can get and sadly, fraud results from that.

Now that you understand what The Fraud Triangle is, let this be one of your must-learn lessons in fraud prevention and occupational fraud. Society is vulnerable to white collar crime such as occupational fraud because of inadequate knowledge about how and why it occurs. It?s a great thing you?ve stumbled upon this fraud prevention blog article from one of the best private investigator teams in Toronto to help you along! Contact us and we?ll be glad to explain fraud prevention and detection further to you!

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