Fraud TriangleStudies show that organizations that encourage ethical behavior are more resistant to misconduct of all kinds, including financial reporting fraud. A strong ethical culture hedges against all three sides of the fraud triangle – pressure, opportunity, and rationalization. In an ethical culture, pressure to commit fraud is counteracted through sound risk management strategies and appropriate incentives. It will support well-designed controls that reduce opportunities for fraud and increase the likelihood of early detection. A culture of honesty limits an individual’s ability to rationalize fraudulent actions.

Management is primarily responsible for an organization’s culture, and together with the board of directors, sets the “tone at the top” by communicating and visibly adhering to clear ethical principles and codes of conduct and by providing necessary support and resources for robust fraud risk management programs and internal controls.

Another vital ingredient in an ethical culture is skepticism. Management should encourage employees to not only feel comfortable but obliged to question and challenge the results for which they are responsible.

The Anti-Fraud Collaboration produces resources aimed at helping corporations nurture cultures that help deter and detect fraud and equips all stakeholders within the financial reporting supply chain with the tools they need to fight fraud.

Take a look at our corporate culture resources below:

The Fraud-Resistant Organization- NACD BoardVision

The Fraud-Resistant Organization- NACD BoardVision

The key to reducing fraud is to identify the behaviors that could lead to it. Through pressure, opportunity, and rationalization, someone could be led to commit fraud which could cause irreparable reputational and criminal risk to companies. Learn more about this and...