Lesson: The Fraud Triangle

In this lesson, Nick Palazzolo, CPA, discusses the reasons behind fraud within an organization, which include incentive, opportunity, and rationalization. These reasons form what is commonly known as the Fraud Triangle. Nick breaks down each element of the triangle, explaining how individuals may find themselves motivated or pressured to commit fraud due to personal or financial challenges, as well as the presence of gaps in internal controls. Furthermore, he illustrates the concepts with practical examples to help understand the different types of fraud, such as misappropriation of assets and fraudulent reporting. It is important to note that the presence of one or more elements of the Fraud Triangle does not automatically indicate fraud; careful investigation is always necessary.