The fraud triangle explains why people commit fraud. It usually needs three things together: pressure (a motive), opportunity (a weakness that lets it happen) and rationalisation (a justification). It is based on Donald Cressey's 1953 research. Organisations can control opportunity most directly, through strong internal controls.
The three elements
| Element | Meaning | Examples | How organisations respond |
|---|---|---|---|
| Pressure (motive) | A financial or personal need, or pressure to hit targets | Debts, lifestyle, gambling, bonus targets, fear of failure | Realistic targets, employee support, watch for warning signs |
| Opportunity | A weakness that lets fraud happen and stay hidden | Weak controls, one person doing a whole process, poor oversight | Segregation of duties, authorisation limits, reconciliations, audits |
| Rationalisation | The story the person tells themselves to justify it | 'I'll pay it back', 'I'm underpaid', 'everyone does it' | Ethical culture, tone at the top, clear consequences, whistleblowing |
Origins
The model comes from Donald Cressey's interviews with people convicted of embezzlement, published in Other People's Money (1953). The label "fraud triangle" came later and was popularised by the Association of Certified Fraud Examiners (ACFE).
A fraud risk management strategy
The book (Chapter 11) sets out three parts:
| Part | Actions |
|---|---|
| Prevention | Anti-fraud culture, risk awareness training, whistleblowing channels, sound internal controls |
| Detection | Regular checks: stock counts, cash and bank reconciliations, data analytics, internal audit |
| Response | A clear plan to investigate, gather evidence and act: disciplinary action, civil recovery or criminal prosecution |
Fraud triangle in ACCA SBL
Fraud links governance, control and ethics (areas B, D and F). In a case where fraud has occurred or is suspected:
- Use the triangle to explain why it happened: what was the pressure, the opportunity and the likely rationalisation?
- Identify the control weaknesses that created the opportunity, using the COSO framework.
- Recommend prevention, detection and response actions.
- Consider the role of the board, audit committee and non-executive directors.
Worked example
A finance assistant at a charity, under personal financial pressure, both approves and pays supplier invoices with no review (opportunity), and tells themselves the money is "a loan" (rationalisation). Fixes: segregate approval from payment, require a second signatory above a limit, reconcile supplier statements monthly, and promote a confidential whistleblowing line.
Advantages
- Simple and memorable
- Points directly to controls (opportunity)
- Helps design anti-fraud programmes
Limitations
- Pressure and rationalisation are hard to see or control
- Explains individual fraud better than collusion or organisational fraud
- Ignores capability (see the fraud diamond)
FAQs
What is the fraud triangle?
A model explaining why people commit occupational fraud: it usually requires pressure (a motive), opportunity (a way to do it) and rationalisation (a way to justify it).
Who created the fraud triangle?
It is based on criminologist Donald Cressey's research into embezzlers, published in Other People's Money (1953). The term 'fraud triangle' was coined later, often credited to W. Steve Albrecht, and popularised by the Association of Certified Fraud Examiners.
Which side of the fraud triangle can an organisation control most?
Opportunity. Strong internal controls, segregation of duties, authorisation and monitoring reduce the opportunity to commit fraud.
What is the fraud diamond?
An extension (Wolfe and Hermanson, 2004) that adds capability: the person must also have the skills and position to commit the fraud.