Final answer:
The Fraud Triangle consists of Opportunity, where a person can commit fraud; Pressure or Motivation, the personal or organizational force that compels the person to commit fraud; and Rationalization, which is how the individual justifies the fraudulent act.
Step-by-step explanation:
The Fraud Triangle
In order for fraud to take place, three specific conditions, often referred to as the Fraud Triangle, must all be present. These elements are:
- Opportunity: This is a situation that allows fraud to occur. The person committing fraud sees a way to use or abuse their position to perpetrate and conceal dishonest behavior without being caught.
- Pressure or Motivation: Often stemming from personal financial problems, pressure pushes the individual to resolve their issues through deceit. The pressure can also come from within the organization to meet financial targets.
- Rationalization: The individual justifies the fraudulent behavior in their own mind. They might think they are deserving, compensating for being underpaid, or believing that it is just a temporary loan they will pay back.
The combination of these three components creates the conditions in which fraud is most likely to occur. Identifying and reducing these elements can help prevent fraud from happening within an organization.