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Fraud and the Fraud Triangle definitions

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  • Fraud
    Any dishonest act by an employee for personal gain at the expense of the employer, often involving theft or falsification.
  • Fraud Triangle
    A model outlining the three essential elements—opportunity, incentive, and rationalization—required for fraudulent behavior.
  • Opportunity
    A situation where an employee perceives a chance to commit fraud, often due to weak controls or oversight.
  • Incentive
    A motivating factor, such as financial pressure or desire for luxury, that drives an employee to commit fraud.
  • Rationalization
    The mental process by which an employee justifies dishonest actions, often citing unfair treatment or personal hardship.
  • Internal Controls
    Systems and procedures within a company designed to safeguard assets, ensure reliable records, and promote legal compliance.
  • Asset Safeguarding
    Measures implemented to prevent unauthorized access to or removal of company resources like cash or inventory.
  • Financial Information Reliability
    The accuracy and trustworthiness of a company's financial records, enhanced by effective internal controls.
  • Compliance
    Adherence to laws and regulations, often ensured through company policies and internal procedures.
  • Cash Register
    A point-of-sale device that must be monitored and reconciled regularly to prevent and detect theft.
  • Inventory
    Goods or materials held by a company that can be targets for theft or misappropriation in fraudulent schemes.
  • Fake Invoice
    A falsified billing document created to illicitly divert company funds, often appearing legitimate if unchecked.
  • Policy
    A formal guideline or rule within a company that directs employee behavior and supports internal controls.
  • Procedure
    A specific method or process established to ensure tasks are performed correctly and consistently, reducing fraud risk.