Understanding the Fraud Triangle: Why and How Fraud Happens

The video tutorial explores the fraud triangle, a model used to understand why and how fraud occurs. It identifies three conditions that enable fraud: incentive and pressure, attitudes and rationalization, and opportunity. Incentive and pressure can be driven by organizational or personal factors. Attitudes and rationalization involve justifying fraudulent acts, influenced by management's behavior. Opportunity is the condition organizations can control through internal controls to prevent fraud. The tutorial concludes with a preview of the next lesson on fraud prevention and detection.

What is the fraud triangle used to understand?

• The reasons behind financial success

• The conditions that enable fraud

• The structure of a successful business

• The hierarchy of an organization

Which of the following is an example of incentive and pressure in the fraud triangle?

• A manager's attitude towards cheating

• A need for money due to medical bills

• An employee rationalizing their actions

• A strong set of internal controls

How can individual rationalization be identified?

• By understanding personal justifications for fraud

• By predicting financial crises

• By observing organizational policies

• By analyzing internal controls

What role does opportunity play in the fraud triangle?

• It is driven by personal financial needs

• It is the condition organizations can control to prevent fraud

• It dictates the attitudes of management

• It provides the rationale for fraudulent acts

What is the responsibility of senior management in preventing fraud?

• To create a culture of entitlement

• To ignore employee rationalizations

• To develop strong internal controls

• To encourage aggressive cheating