The Fraud Examiner

The Integrity Triangle: How to Go Past the Tip of the Iceberg of the Fraud Triangle

Sophia Carlton, CFE, Manager of Fraud Risk Mitigation & Analytics, Grant Thornton LLP and Linda Miller, Principal, Fraud & Financial Crimes, Grant Thornton LLP                  

Occupational, or internal fraud, is not a new problem. In the ACFE's 2020 Report to the Nations, fraud examiners estimated that organizations lose 5% of revenue to internal fraud each year. However, this estimate does not often align to the fraud losses organizations know about and can track easily. Organizations then spend more time and energy on external fraud, focusing on the threats outside of their organization rather than the potential threats coming from within.

Fraud is like the proverbial iceberg; the deceptive nature of fraud means it is unknown until discovered, leading to potential submerged or unknown frauds beneath the surface. It is then easy to imagine how the 5% estimate — or, more specifically, the internal fraud losses your organization can see — may represent only the tip of the iceberg. This is true both pre-pandemic and certainly throughout due to the rise in fraud across industries resulting from COVID-19.

The first step to combatting internal fraud and to discovering what is below your iceberg is understanding why internal fraud happens. Luckily, there is a tried-and-true framework, known as the Fraud Triangle. Internal fraud can involve a variety of schemes, but it is generally due to three specific factors that make up the Fraud Triangle:

  • Motivation (or pressure) - the need for committing fraud (i.e., need for money, to meet a performance objective or to meet stakeholder expectations)
  • Rationalization – the mindset the fraudster uses that justifies them committing fraud (i.e., the company owes me, I will pay the money back or it won’t hurt anyone if I do this)
  • Opportunity – the situation that enables fraud to occur, often when internal controls are weak or nonexistent

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