HOW CAN THE FRAUD TRIANGLE HELP TO IDENTIFY FRAUD AND AVOID IT

  • The motivation for committing fraud can be varying from financial to non-financial. For preventing fraud, companies must implement strong internal controls. As an organization with strong internal control experience lower frauds and quickly identify frauds.
  • Strong Fraud deterrence policies also help to prevent fraud as employees have a fear of its consequences like the loss to the job and not getting a job anywhere.
  • In audits, management audit and operational audits to be motivated so that management fraud can be detected.
  • In the case of the statutory audit, there is a clause where the auditor has to report whether fraud is committed by employees or management or a third party.

Importance

Fraud triangle comprises three components pressure, opportunity & rationalization. It helps in preventing the frauds if there is:

  • Zero Tolerance – Zero tolerance on errors and mistakes. Many employees pity themselves after committing the fraud, and for this also, organizations shouldn’t be kind and have zero tolerance for this.
  • Surprise Visits and Audits – There must be a system of surprise checks, and visits by top management and auditors should also do surprise audits to ensure that no frauds are committed by or on the company.
  • Code of Ethics – Companies have a robust code of ethics to ensure that they send the right message to employees when it comes to fraud. And provide that code of ethics to be followed by one and all.

Conclusion

Fraud Triangle is the concept which explains the reason behind committing the fraud. The main elements are pressure, opportunity, and rationalization. To prevent fraud, there must be strong internal controls, zero tolerance, and a proper code of ethics, which motivates employees to be ethical. To prevent and detect fraud, there must be surprised checks and audits, and management audits are also encouraged, and there must be strong fraud deterrence policies so that no employee can think of committing fraud.

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