The Fraud Triangle

It’s Like the Bermuda Triangle…Except with Really Bad Publicity

I’m a writer. Not a creative writer. I’m a marketing copywriter and researcher. My specialty is turning complex concepts into engaging copy customized to the target audience. The target audience was a bunch of (probably, I know I am) very tired grad students in an accelerated — a 14-week semester crammed into 7 — MBA corporate accounting class.

In the early 1970s, well-known criminologist Donald R. Cressey established the Fraud Triangle, aka the circumstances where someone is most likely to commit fraud. The three 60-degree angles of Cressey’s equilateral fraud triangle, along with examples as shown in the diagram below, are:

• Perceived [Internal or External] Pressure: You’re running low on printer paper at home and don’t have time to stop at the local Staples because you work crazy long hours, so you just grab a couple reams from the storage closet in your office.
• Perceived [No chance of getting caught or punished] Opportunity: You need a copy of the copyrighted D&D 5th Ed manual, but you don’t want to pay $29.99 for it, so you run off a PDF copy on the company’s printers after everyone goes home because you know you can, and who is gonna care anyway?
• Rationalization: You decide you have a right to that extra ream of paper AND the use of the company’s printers because they make you work long hours and don’t pay you enough. Also, you are 100% free to print off a copy of that tabletop RPG manual instead of buying it at your local game store because Wizards of the Coast charges waaay too much for this stuff. How can anyone afford it?

Fraud can also be a combination of all three corners of the triangle, following a linear train of thought (as shown in the following diagram. (I’m honing my Canva and graphic design skills while I build my portfolio this week 🤪). Perceived pressure to commit fraud can lead to identifying opportunities to do so, and, since most employees are generally ethical and reliable (I like to think), rationalization.

Hence, the reason Cressey’s Fraud Triangle is an equilateral, not an isosceles. Pressure, opportunity, and rationalization happen in equal measure.

The Fraud Triangle, The SEC, and Lessons From The Fortune 500

A local Fortune 500 example of the fraud triangle and how the SEC used it to identify and prosecute a company for fraud can be found in the 2002 Tyco Embezzlement Scandal. The SEC recognized the perceived opportunity then-CEO Dennis Koslowski had to embezzle nearly $600M from Tyco. Koslowski was motivated to commit fraud because he was under pressure owing to an extravagant lifestyle. Koslowski also applied peer pressure to engage Tyco’s board of directors and key C-suite leaders to assist him.

You can read more about the case on the SEC’s website. Lori Thanos at Northcentral University also published a great case study on the scandal: Tyco International Ltd. Case Study: The Implications of Unethical Behavior.

Agency Theory‘s Role in Reducing Fraud

Agency theory explains the relationship between a company’s executive leadership and its individual managers and employees (Corporate Finance Institute, 2025). Fraud can occur for many reasons, but one of its contributors is the relationship between an organization’s leadership and its agents, aka operational managers and employees.

Agency theory touches all three of criminologist Donald R. Cressey’s fraud triangle, aka “the 3 conditions that typically lead to higher instances of occupational fraud” (Embroker, 2025). Employers can manage the perceived pressure angle by offering a transparent and competitive compensation package — salary, retirement, benefits, and stock options. Enforcing GAAP, SOX, and stringent inventory control and shrinkage systems will get you around the Perceived Opportunity corner, and, finally, ethics training and clearly documented consequences will eliminate any potential rationalization.

And maybe Wizards of the Coast needs to offer a discount on its RPG manuals. 🤣

Kidding.

Cheers,

Cris