Forensic Accounting and Fraud Examination, 2nd Edition

9Evidence-Based Fraud Examinations

The Fraud Triangle and the Courts

As noted in Chapter 3 of this book, the September/October 2017 issue of Fraud Magazine, contained an article by John Gill titled, “The Fraud Triangle on Trial.” In his commentary and analysis, Gill presented a perspective of the fraud triangle that has the potential to rock the foundations of the antifraud profession—at least when it comes to forensic accountants and antifraud professionals testifying in court. Gill found that three U.S. court opinions related to the fraud triangle denied the admissibility of expert testimony based on the fraud triangle because it was deemed to be “unreliable” theory.

Going back as far as 2006, Steve Albrecht (see a 2012 summary in Albrecht, Albrecht and Albrecht, “Fraud Examination”), who in 1991 crafted Cressey’s concepts into the fraud triangle, offered a solution in the form of “the elements of fraud” or “the triangle of fraud action:” the act, the concealment, and the conversion.

As described by Dorminey, Fleming, Kranacher, and Riley in 2012 (see “The Evolution of Fraud Theory” in Issues in Accounting Education):

While the Fraud Triangle identifies the conditions under which fraud may occur, the triangle of fraud action describes the activities an individual must perform to perpetrate the fraud. The act represents the execution and methodology of the fraud, such as asset misappropriation, corruption, or financial statement fraud. Concealment represents deliberate effort ...