Which of the following statements about financial abuse and the fraud triangle is true?

• A. Rationalization is not a factor in the fraud triangle.
• B. Financial abuse can only happen in large corporations, not in small businesses.
• C. Financial abuse often occurs when opportunity, pressure, and rationalization are present.
• D. The fraud triangle consists of opportunity, intent, and detection.

Answer: (C)

Verified step by step guidance

1. Understand the fraud triangle: The fraud triangle is a framework used to explain the factors that lead to fraudulent behavior. It consists of three elements: opportunity, pressure (or incentive), and rationalization.
2. Clarify the role of rationalization: Rationalization is a critical factor in the fraud triangle. It refers to the justification or reasoning that individuals use to convince themselves that their fraudulent actions are acceptable.
3. Evaluate the statement about financial abuse in small businesses: Financial abuse can occur in any organization, regardless of size. Small businesses are often more vulnerable due to fewer internal controls.
4. Analyze the correct answer: The statement 'Financial abuse often occurs when opportunity, pressure, and rationalization are present' aligns with the fraud triangle framework, making it the correct answer.
5. Identify the incorrect elements: Statements such as 'Rationalization is not a factor in the fraud triangle' and 'The fraud triangle consists of opportunity, intent, and detection' are incorrect because they misrepresent the components of the fraud triangle.