The Wheatley Institution

Fellow Notes


The Compromise Triangle

“We must remember that it is the seemingly unimportant daily decisions that define who we are and that rationalizations weaken our character and cause us to lose our self-respect.”

W. Steve Albrecht | May 12, 2014
| Print | Google plus Google plus linkedin share button
The fraud triangle consists of the three sides: perceived pressure, perceived opportunity, and rationalization. The three together can lead to unethical behavior.



Anyone who has studied fraud in the past 30 years has surely seen the “fraud triangle.” It is probably the most iconic and fundamental fraud theory developed. It has thoroughly permeated the fraud, criminology, accounting, auditing, and marketing literature and has provided the basis for accounting policy decisions. It has been universally accepted in every setting where fraud is described or analyzed. The fraud triangle states that individuals are motivated to commit fraud when three elements come together: (1) some kind of perceived pressure, (2) a perceived opportunity and (3) some way to rationalize the fraud as not being inconsistent with one’s values. The fraud triangle can be diagramed as follows:

While others have identified elements that comprise the triangle, it was in my early research that I developed the fraud triangle. At the time, I was consulting with a large paper manufacturing company that owned large tracts of timber. While training them about fraud, controls and risks, they introduced me to the fire triangle which states that for a fire to occur, three elements are necessary: (1) heat, (2) fuel and (3) oxygen. When all three elements combine, there is a fire. If any one of the three elements is eliminated, the fire is extinguished. Oxygen is eliminated by smothering the fire, using chemicals, or by causing explosions. Heat is most commonly eliminated by pouring water on fires. Fuel is removed by building fire lines or fire breaks or by shutting off the source of the fuel. From my exposure to the fire triangle, I developed the fraud triangle. There are so many similarities. Like fire, fraud can be extinguished by eliminating any one of the three elements. And, the more of any one element that is present, the less of the other elements is necessary for a fraud to be committed.

The three elements of the triangle are always present when compromises are made

While there have been many challenges to the fraud triangle over the years, I am convinced that, as modified by subsequent research, it has stood the test of time and is still as relevant today as it has ever been. The metaphor of triangles is extremely useful in helping anyone better understand fraud. Over the years as I have interviewed fraud perpetrators, served as an expert witness in large fraud cases and researched various fraud-related topics, I have come to realize that the fraud triangle is much more generalizable than just explaining fraud. In fact, I often now refer to the fraud triangle as the compromise triangle. Whether it is fraud or any other type of compromise, the same three elements of (1) perceived pressure, (2) perceived opportunity and (3) some way to rationalize the compromise as not being inconsistent with one’s code of conduct are always present. For example, consider the student who cheats in school. The student might say (1) I need to cheat to get a good grade in order to keep my scholarship—a perceived pressure, (2) the professor left the room during the test—a perceived opportunity, and (3) everyone cheats a little—a rationalization. The same is true of someone who gets too much change at the grocery store and doesn’t return it. That person might say (1) I need this money—perceived pressure, (2) they gave it to me —a perceived opportunity, and (3) they’ll never miss it, it’s their mistake anyway—a rationalization. Or, consider the person who breaks the speed limit while driving. That person might say (1) I’m late—a perceived pressure, (2) I won’t get caught—a perceived opportunity, and (3) everyone breaks the speed limit—a rationalization. Finally, consider the husband or wife who isn’t true to his/her marriage partner. That person might rational by saying (1) I need a caring female or male companionship—a perceived pressure, (2) he or she likes me and is making advances towards me—a perceived opportunity, and (3) my wife or husband doesn’t love or care about me anymore—a rationalization. The three elements of the triangle are always present when compromises are made and can help us understand why we all make compromises in our life. Here is how I now diagram the compromise triangle.

It is the seemingly unimportant daily decisions (SUDS) that define who we are

To help us become more ethical and make better decisions, we need to minimize the three elements of this compromise triangle. We need to do everything possible to limit our perceived pressures. We must live within our means; we must care about others and not be selfish; we must view relationships as long-term rather than short-term and we must try to follow the Savior’s admonition to “love our neighbors as ourselves.” With respect to opportunity, we must stay away from temptations and be in the middle of the ethics road; we must live within the bounds of our personal integrity; we must not view circumstances as opportunities to break our moral code but as opportunities to develop true, value-based character and we must realize that making compromises isn’t just an opportunity to compromise and not get caught but rather it is a perceived opportunity that starts us down a slippery slope where it is hard to climb back. Finally, with respect to rationalizations, we must develop a strong personal code of ethics and morality; we must make decisions in advance about how we will act in potentially compromising situations; we must remember that it is the seemingly unimportant daily decisions (SUDS) that define who we are and that rationalizations weaken our character and cause us to lose our self-respect.