fraud detection: The Fraud Triangle

Blog article 
by Bob Thomas

The Fraud Triangle: Implications For Fighting Insurance Fraud and Procurement Fraud


Understanding the mindset of fraudsters can be enormously helpful to fraud fighters. A seminal tool for this is the fraud triangle, originally conceived some 70 years ago by Criminologist Donald Cressey[i].

The fraud triangle essentially states that three elements drive criminals to execute fraud:

  • Rationalization: The criminal can rationalize their reason for executing a fraud. Examples are “I should be getting paid more,” “everyone else is doing it,” and “the insurance companies rip off customers, so why not rip them off?”
  • Pressure: The criminal is under financial or other pressure. Examples are excessive debt or living beyond their means, which can sometimes be due to gambling or drug addictions, or loss of income due to COVID-19.
  • Opportunity: The criminal feels that it’s practical to execute the fraud and not be caught. This can be enabled by lax or ineffective controls or oversight.

In general the fraud triangle applies equally well for internal frauds and external frauds. The fraud triangle applies very well for individuals who are executing a fraud, though it is less applicable for larger scale frauds executed by organized crime groups. Regardless, a company generally cannot control either rationalization or pressure, but certainly can heavily impact opportunity.

How can you impact opportunity? For insurance fraud, procurement fraud, and other frauds, it can be very beneficial to:

  1. Have a comprehensive anti-fraud program in place, including effective tools for detection and investigation.
  2. Communicate the existence of your anti-fraud program internally, such that employees may be less likely to attempt executing a fraud if they think there’s a higher chance they could be caught.
  3. Utilize technology to help you detect frauds before payments are made, and to effectively investigate frauds after they may have occurred.

For insurance fraud, procurement fraud, and many other frauds, DataWalk software can enable you to quickly detect suspicious claims, transactions, or contracts, in order to reduce the risk of paying out to fraudsters. DataWalk provides a highly flexible scoring engine such that you can easily generate risk scores that utilize all of your available internal/external data, and enabling you to iteratively tune these scores to continuously improve. DataWalk customers have used this approach to realize remarkable accuracy in automatically identifying suspicious conditions. DataWalk also provides you with the capability to investigate previous transactions or cases, in order to recognize organized and/or ongoing frauds.

The timeless fraud triangle continues to provide a valuable framework for fraud fighters, and DataWalk software provides a tool to help eliminate the opportunity leg of the triangle.


[i] Donald R. Cressey, Other People's Money (Montclair: Patterson Smith, 1973) p. 30.

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