White Paper - Using the Fraud Triangle to Design and Assess Internal Control

Whitepaper

This is a members only resource.

Author

Barry Davidow

BCom, BAcc, MTaxLaw, ACA, CFE, CRMA, PFIIA, Advanced Diploma of Government (Management), Diplomas in Risk Management and Business Continuity, Government (Fraud Control), Government (Investigation) and International Financial Management.

Matthew Lyon

B.Comm, CPA, AMIAA

Date

2023

Topics Explored

Risk Management, Control

Format

White Paper

Extract/Description

The Fraud Triangle consists of financial pressure, rationalisation and opportunity. Each of the three components should be taken into account when assessing anti-fraud internal controls. The Fraud Triangle is a great prompt to use to help ensure internal auditors adequately assess anti-fraud internal controls and identify important controls that may be missing.

Key Points

1. The Fraud Triangle is a model for explaining the factors that cause someone to commit occupational fraud and consists of three components which together lead to fraudulent behaviour.

2. Organisations often have branches or units where activities undertaken may be considered as high-risk because the consequences of fraud are high or the area is more vulnerable to fraud. Additional anti-fraud controls may be appropriate for these areas.

3. Implement controls to prevent people being placed under pressure and manage the level of risk if they are pressured.

4. People do not commit fraud unless they are able to justify it to themselves.

5.For people to perpetrate a fraud there has to be the opportunity for them to do so. Usually, the opportunity is presented by a weakness in systems of internal control.