6 Cognitive Biases of an Investigator in Corporate Fraud Investigations



Sundaraparipurnan N., Associate Director, Forensic Services
SKP Business Consulting LLP

Investigation requires an understanding of people and events, as well as the ability to put them into perspective. An investigator, while expected to be independent, should consider the possible cognitive biases he might possess while performing the role; otherwise, he might not approach the investigation professionally. For example, an investigator who creates a theory about a fraud incident may be blind to evidence that invalidates his theory.

Though psychologists have applied the principles around biases in multiple scenarios, their applications have been limited in the field of corporate fraud and misconduct investigations. Considering the possible consequences of an incorrect judgement, caused by an inappropriate correlation or insufficient evidence, it’s essential to evaluate your approach when handling such potential biases. Some cognitive biases could also be used to the investigator’s favor if applied in the appropriate circumstance. 

Consider some of the key biases that might have an impact on an investigation:

  1. Outcome bias: Judging a decision based on its outcome.
    For example: An investigator might use outcome bias to influence a potential whistleblower to file a report of misconduct by revealing that other employees have shared similar information. It’s pertinent to note that the whistleblower doesn’t have an insider’s perspective of the number of concerns received and the proportion of those that are substantiated. Therefore, any effort towards trying to influence the whistleblower’s behavior would most likely persuade him to report a concern.
  2. Confirmation bias: Listening to information that confirms the preconceptions.
    While preparing for the interview of a subject, a fraud examiner might come across several visualizations of fraud. However, they need to understand that these are mere visualizations and the facts need to be fleshed out during the interview.

    For example, a suspect is believed to have passed a fraudulent transaction that significantly affected the books. However, they’re found to be innocent because an IT administrator misused his account. Using structured conversations, the investigator could lead the subject to believe that the direction of the investigation isn’t pointing towards him.
  3. Clustering illusion: The tendency to see patterns in random events.
    In an investigation, an investigator might come across disparate information that has limited correlation. An investigator may find similarities in the names between a director of a target company on which due diligence is being conducted and a person on an international watch list while conducting pre-investment public domain corporate intelligence searches. However, if they look at additional information, like the director’s personal information, they could eliminate this bias.
  4. Availability heuristic: Overestimating the importance of information that is available to them.
    Based on certain information provided by whistleblowers or other witnesses, an investigator might believe that adequate evidence of misconduct exists. However, they should consider that in investigations where they could not obtain documentary evidence, the reliance on the verbal evidence should be appropriately measured.
  5. Stereotyping: Expecting a group or person to have certain qualities without having real information about the person.
    Imagine a fraud has been committed by collusion. A select group of employees in the department may indicate they are aware of fraud incidents being perpetrated by others in the same department. However, this awareness may not be certain. In circumstances where an individual has been implicated in a fraud is the subject of a separate review, it is essential to remember that the individual did not necessarily commit fraud this time around.

    Stereotyping can be best used in accusatory interviews where an investigator accuses a subject by stereotyping his behavior with that of another suspect. In this case, the subject would help the investigator understand the differences in behavior, which could demonstrate the difference between innocence and unethical behavior.
  6. Blind-spot bias: Failing to recognize one’s own biases.It’s essential to conduct a self-assessment of possible cognitive biases and consciously attempt to address them. If an investigator were to use blind-spot bias during the course of investigation related to employee misconduct, it could influence them to believe unethical behavior exists. However, they might miss the fact that the employee acted on the instructions of a superior and didn’t understand the possible impact of such action.

While these situations can’t be pre-planned, it’s the investigator’s responsibility to remain aware of, and mitigate, these biases.