Question

Identify and explain the three elements of the fraud triangle.

Explain the importance of the fraud triangle for small business owners.

Answer 1

Three elements of fraud triangle:-

1. Motive – It involves the need for committing the fraud for money or other benefit in kind
2. Rationalization – the mindset of the fraudster which justifies to commit fraud for their benefit
3. Opportunity – the circumstances and situation which enables fraud to occur This happens when internal controls are weak or non existent

By understanding the fraud triangle the small business owner can limit the fraud by reducing opportunities to commit fraud.The company can implement internal control to check the fraud. The business owners can develop ethical standards to reduce fraud chances.