Businesses across the United States continue to be at serious risk from corporate fraud. ACFE reports that about 5% of a business’ annual revenue is lost due to fraud. The fraud triangle theory is one of the best models for handling and understanding fraud. Experts believe the fraud triangle, first created by criminologist Donald Cressey, identifies the main factors that lead to workplace fraud.
The fraud triangle is mainly made up of three parts: pressure, opportunity, and rationalization. Understanding each component of the fraud triangle helps those in charge of business leadership, auditing and compliance plan better defenses against fraud. Because fraud is getting more complex, mastering the fraud risk triangle is important for keeping finances secure.
The Three Parts That Make Up the Fraud Triangle
Fraud is often sparked by pressure.
The beginning of the triangle of fraud is pressure. This is the force that leads an individual to commit fraud. In companies, the pressure usually comes in the form of financial issues, like big debts, expensive lifestyles or not feeling secure at work. Pressure from our feelings or our jobs can also play a big role. 42% of cases of occupational fraud in the U.S. in 2024 were linked to personal money issues, a survey by the ACFE indicates.
Seeing the early signs of stress or money troubles in employees allows management to handle issues early and keep them from becoming fraudulent. Adding mental health resources can lessen this aspect of the fraud triangle.
Opportunity is the Key
Opportunity is the second part of the opportunity fraud triangle that you can most often control. Usually, fraud takes place when someone thinks they won’t get caught. When there are weak controls inside a business, not enough monitoring and duties mixed up, fraud can easily occur.
Restricting opportunities in a company is important for stopping fraud. Carrying out regular checks, having whistleblower schemes and using online monitoring systems can seriously decrease the chances of wrongdoing. When looking for systemic weaknesses, internal auditors should use the triangle of opportunity.
Making Excuses for the Actions
The finishing piece in the fraud triangle is called rationalization. It gives fraudsters the excuse they need for their crimes. People often tell themselves that a raise is fair, they will pay back the loan or the company can afford to lose the amount. Because of these thoughts, it becomes simpler for someone to commit the crime.
A clear and strong code of ethics, together with firm discipline policies, can stop people from rationalizing bad decisions. Focusing on transparency and ethics often helps a company avoid fraud.
Looking at How the Fraud Triangle Affects the U.S. Businesses
Developing a Workplace Where Fraud is Harder to Commit
For smaller and mid-sized American companies, the first step in using the fraud triangle theory is to establish an ethical atmosphere. Making sure staff know the company’s ethical guidelines is essential, as is stressing transparency. In the U.S., companies that train employees about fraud cut their chances of fraud by more than 50%, says the U.S. Chamber of Commerce.
Leaders have to act in a moral manner to inspire their teams. Accountability and obedience to policies by senior management encourage all team members to have a strong anti-fraud stance.
Improving the Company’s Internal Controls
Based on the fraud risk triangle, companies are able to review and enhance their internal controls. Repeatedly assessing risks, particularly in accounting and procurement, might show where the fraud triangle can be broken.
Some things you can do are:
- Following the rule that duties must be separated
- Running unexpected audits
- Adding fraud detection software to the system
- Putting confidential reporting systems in place
As a result, the chance for opportunity fraud is decreased, effectively discouraging those who might commit the fraud.
Current Fraud Trends in America
Digital infrastructure, which we rely on more, has led to new challenges. US government data shows that Americans suffered more than $10 billion in fraud losses last year—a new record. Most of these issues were due to internal fraud, phishing and employees using company assets without authorization.
Therefore, the fraud triangle becomes more important than it has ever been. When companies deal with remote work and cybersecurity issues, studying the fraud triangle helps them spot and close any gaps before they occur.
Conclusion: Taking Awareness and Making It Count
Studying the fraud triangle can actually help businesses avoid losing their money. If U.S. companies look at each part of the triangle—pressure, opportunity and rationalization—they can develop systems that are hard to take advantage of by fraud.
The fraud risk triangle helps you effectively assess a company’s potential for fraud. Proactively addressing the three parts of the fraud triangle theory helps businesses to prevent and catch fraud more easily. As the business world is under more financial and digital pressure, the triangle of fraud is a key element in corporate defense.
