Better Understanding Fraudsters' Justifications

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FROM THE PRESIDENT AND CEO
Bruce Dorris, J.D., CFE, CPA

One of the greatest challenges in our field is to think like the fraudsters we’re trying to stop. It’s not easy for CFEs to live inside crooks’ minds, but it’s important to put on those “glasses” and try to see our organizations from the fraudster’s mindset.

Bret Hood, CFE, in his cover article, “Twisted rationalization,” which examines this third leg of the Fraud Triangle, encourages fraud examiners to address this component more thoroughly in their fraud risk management programs.

Hood examines several studies that shine a light on rationalization. What becomes clear is that human beings have a phenomenal ability to justify their actions. Company leaders justify ignoring consumer safety because it will save money. They can cheat on their financial numbers because “everyone is doing it.” Employees steal from large companies because the company “can afford it” or “will never miss it.” Studies also show that fraud increases if management isolates itself from the rest of the staff and fails to follow its company policies and rules.

We’re busy, but in a COVID-19 world, we’re more isolated. Our challenge is to breathe new life into our codes of conduct and our anti-fraud policies. An organization’s leaders must actively set the tone, and hold themselves and the employees accountable for following the rules and acting ethically and honestly.

This apathy or failure to manage by example often leads to “unwritten informal cultures” that can bring a company down, as Hood writes. The longer it exists, the easier leaders rationalize. “Rationalization becomes that much easier when people perceive they have no choice but to act in certain ways to save their jobs.”

The ACFE Report to the Nations has demonstrated for years how preventative controls can benefit an organization. The most recent study, published in April, illustrates once again that organizations with anti-fraud controls in place experienced smaller fraud losses and detected frauds more quickly than organizations lacking those controls. In some cases, the losses were cut by more than half.

As CFEs, we can sharpen our fraud risk management skills by better understanding the rationalizations people use to break the rules. By understanding the potential justifications, we can take better aim at designing controls and communication programs to make employees think twice before making a decision they’re sure to regret.

Fraud examiners tend to de-emphasize the rationalization factor — to the detriment of prevention efforts. Check out the cover article in the July/August issue of Fraud Magazine to learn some of the science behind would-be fraudsters’ justifications and how we can use it practically to deter their crimes.


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Bruce Dorris

Bruce Dorris is the President and Chief Executive Officer for the Association of Certified Fraud Examiners (ACFE). Dorris also serves as an advisory member to the ACFE Board of Regents. He has conducted anti-fraud training for the United Nations, the American Bankers Association, colleges and universities around the world, as well as with the FBI, GAO and other federal and state law enforcement agencies in the U.S. Dorris has been with the ACFE for 12 years, previously serving as Vice President and Program Director, and is proud to be involved in the continued growth and professional direction of the world’s largest anti-fraud organization.