Multiple Choice
Which of the following most accurately describes an institutional conflict of interest in the context of fraud and the fraud triangle?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Organizations that fail to maintain accurate, relevant, and timely accounting records are most likely increasing which element of the fraud triangle?
A
Opportunity
B
Rationalization
C
Pressure
D
Collusion
Verified step by step guidance1
Understand the fraud triangle: The fraud triangle consists of three elements—Opportunity, Rationalization, and Pressure—that explain why individuals commit fraud.
Analyze the role of accounting records: Accurate, relevant, and timely accounting records help organizations monitor financial activities and detect irregularities, reducing the chance for fraudulent activities.
Connect the concept of 'Opportunity': Opportunity arises when there are weaknesses in internal controls or systems, such as poor record-keeping, which make it easier for individuals to commit fraud without being detected.
Evaluate the other elements: Rationalization refers to the mindset that justifies fraudulent behavior, and Pressure refers to external or internal forces that drive individuals to commit fraud. These elements are less directly impacted by accounting records compared to Opportunity.
Conclude that failing to maintain proper accounting records increases the 'Opportunity' element of the fraud triangle, as it creates gaps in oversight and control.
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