Examining COVID-19 Fraud Risks through the Concept of the Fraud Triangle

Illumeo Customer Success's Profile

The theory behind the fraud triangle is one of the most basic concepts an accounting student learns in his or her introductory auditing college coursework.   The fraud triangle is a model for explaining the factors and/or motivations that cause a person to commit fraud.  The Association of Certified Fraud Examiners defines the fraud triangle as “a model for explaining the factors that cause someone to commit occupational fraud.  It consists of three components which, together, lead to fraudulent behavior: (1) perceived unshareable financial need, (2) perceived opportunity, and (3) rationalization” (acfe.com).  These three components make up the three ‘sides’ or ‘legs’ of the triangle. 

However basic the concept of the fraud triangle is, it can be used to analyze areas of fraud risk due to the upheaval of the current financial environment caused by the COVID-19 virus.  As the COVID-19 virus continues to cause turmoil, the risk of fraud continues to increase in all three sides of the fraud triangle.  The fraud triangle is a great starting point to examine how the virus has proven there are new, different ways to commit fraud, on the individual employee level as well as the upper leadership level.

Perceived unshareable financial need:

The pressure on companies to continue operations in the wake of the COVID-19 crisis is immense.  Companies are rapidly adjusting their business models and project future revenue and cash flow with many unstable factors playing into the calculations.  The pressure to meet shareholder/investor expectations, maintain liquidity, and stay viable while there are so many variables at play could make manipulation of financial statements appealing to many in leadership.   

Perceived opportunity:

The quick change in the working environment for many employees opened up new opportunities for employees to commit fraud.  Opportunities are often available because there are weak internal controls, a poor ‘tone at the top’ or inadequate accounting policies in place.  Many companies are operating with a reduced number of employees and most of these employees are working remotely.  It is highly unlikely that companies were able to adjust their internal control procedures to cover these new challenges.  The types of data and information access required by employees working from home creates increased fraud risk over areas of information technology.  The reduction in workforce numbers affects both value-added employees as well as crucial administrative employees in the positions to monitor and assess the internal control changes needed.  


In this current financial crisis, when employees are working alone at home, often in a reduced capacity with a reduced paycheck, it is easy to see how one could rationalize committing fraud.  Employees are suffering in their personal finances just as companies are suffering with their corporate finances.  However employees may be feeling isolated and forgotten by their employers.  Employees may feel like there is little to lose in their current position and they may feel that they are owed something by their employers, who are not honoring their employment contracts.  Employees may feel a diminished sense of loyalty to employers.        

The concept of the fraud triangle is a basic one, but a foundational one, that can be applied to the current financial crisis caused by COVID-19.