Understanding the Fraud Triangle and the Imperative of Integrity

Insights from "Deception and Financial Mayhem" by Saad Maniar and Faisal Sheikh

"Deception and Financial Mayhem," authored by Saad Maniar and Faisal Sheikh, delves into the intricate world of financial fraud, uncovering the psychological and systemic foundations that enable such wrongdoing. Central to the book’s analysis is the fraud triangle, a model that highlights the three key elements that must be present for fraud to occur: pressure, opportunity, and rationalisation.

The first angle of the fraud triangle, pressure, refers to the personal or financial stressors that drive individuals toward fraudulent conduct. These pressures can stem from mounting debts, unrealistic performance targets, or personal ambitions. The second angle, opportunity, reflects the weaknesses in internal controls or oversight that allow individuals to commit and conceal fraud. Finally, rationalisation involves the justifications perpetrators create to make their actions seem acceptable, such as believing they are “just borrowing” or that the company “owes” them.

Maniar and Sheikh emphasise that the cornerstone of preventing financial mayhem lies in upholding integrity at both individual and organisational levels. Integrity acts as a shield against the rationalisation of unethical behaviour. When integrity is embedded in a company’s culture, backed by robust ethical policies, regular training, and transparent leadership, it becomes far less likely that individuals can justify fraudulent acts, even if faced with pressure and opportunity.

To address the risk of fraud, the authors propose comprehensive solutions. They advocate for strengthening internal controls, fostering a culture of transparency, and encouraging whistleblowing without fear of retaliation. Most importantly, they highlight the role of continuous ethical education and leadership by example as the bedrock for a resilient, integrity-driven organisation. By focusing on these solutions, businesses can effectively disrupt the fraud triangle and safeguard against financial deception.