The Fraud Triangle, developed by criminologist Donald Cressey, outlines three conditions that are commonly present when fraud occurs. These conditions help auditors assess fraud risks within an organization.

1. Incentive/Pressure

This element recognizes that an employee or manager feels a need or pressure to commit fraud. The motives can include:

• Financial distress (e.g., debt, medical bills, gambling issues).

• Performance-based incentives (e.g., bonuses tied to earnings).

• Pressure to meet financial expectations or market projections.

• Fear of losing a job or maintaining an expensive lifestyle​.

2. Opportunity

Fraud can only occur if there is an opportunity due to weak internal controls or the ability to override them. Factors increasing fraud risk include:

• Lack of segregation of duties.

• Weak oversight from management or the board.

• Poor enforcement of company policies.

• High employee turnover in key financial roles​.

3. Attitude/Rationalization

Fraud perpetrators often justify their actions to reduce their sense of guilt. Common rationalizations include:

• "I’m just borrowing the money; I’ll pay it back."

• "The company is big enough to afford this loss."

• "I deserve this because I’m underpaid."

• "Everyone else is doing it, so why not me?"​.

Implications for Auditors

Auditors must assess these conditions when evaluating fraud risks. They should:

• Look for red flags like unexplained wealth, reluctance to take vacations, or excessive control over financial processes.

• Strengthen internal controls to minimize opportunities.

• Foster an ethical corporate culture to reduce rationalizations.