Which of the following transactions has the most risk of fraud according to the Fraud Triangle?

• A. A company deposits daily cash receipts into the bank at the end of each day
• B. A customer pays for goods using a credit card at a retail store
• C. An external auditor reviews the company's annual financial statements
• D. An employee with financial pressure processes refunds without managerial oversight

Answer: (D)

Verified step by step guidance

1. Understand the Fraud Triangle: The Fraud Triangle consists of three elements that contribute to fraud—Pressure, Opportunity, and Rationalization. Pressure refers to financial or personal stress, Opportunity arises from weak controls or oversight, and Rationalization is the justification for unethical behavior.
2. Analyze the transactions: Review each transaction in the context of the Fraud Triangle to identify which one has the highest risk of fraud.
3. Evaluate the first transaction: Depositing daily cash receipts into the bank at the end of each day has minimal risk if proper controls are in place, such as dual custody or reconciliation processes.
4. Evaluate the second transaction: A customer paying with a credit card at a retail store has low fraud risk for the company, as credit card companies typically handle fraud prevention and detection.
5. Evaluate the fourth transaction: An employee with financial pressure processing refunds without managerial oversight presents a high risk of fraud. This scenario aligns with the Fraud Triangle—financial pressure (Pressure), lack of oversight (Opportunity), and potential justification for unethical behavior (Rationalization).