What Makes a Fraudster Tick?

FROM THE RESOURCE GUIDE

John Gill, J.D., CFE
ACFE VP of Education

It is an unfortunate truth that fraud exists in every country and in every industry. One of the most challenging parts of this continuing fight is understanding what goes on in the mind of someone who commits fraud. What causes one person facing financial hardships to steal from his employer while another finds a more honest way to pay his bills? And what goes through the mind of individuals as they are making that choice — that first decision — to become a fraudster? How do they continue to justify their actions to themselves as they carry out their schemes?

As an anti-fraud professional, it’s important to look for the answers to those questions. You cannot effectively deter fraud unless you have a full and complete grasp of the different motivations and tipping points that might affect a fraudster. I have found that interviewing fraudsters is one of the best tools to truly enter their minds. Each story is interesting in its own right, but when combined, you begin to see the common thought patterns displayed by these perpetrators before, during and after the crime. It is also important to examine different theories offered by experts — both past and present about what causes some people to turn to fraud. 

One thing that has always stood out to me while trying to understand fraudsters is that the Fraud Triangle is alive and well. Every so often, someone argues that the triangle is no longer relevant or needs to be revised. But based on the interviews the ACFE has conducted over just the last four or five years,it is just as relevant now as it was back in Dr. Donald Cressey’s day. His basic theory still holds up: fraud is likely to occur if the subject has some kind of unshareable financial pressure, a perceived opportunity to relieve that pressure, and the ability to rationalize his or her conduct so that there is a lessening of guilt or a feeling of justification.

I am excited to announce that the ACFE has developed a new 1-day class, Understanding the Mindset of a Fraudster. We will also be offering a 4-hour version of the class as a Pre-Conference session at this year’s 27th Annual ACFE Global Fraud Conference. The seminar will examine fraudsters’ behaviors and motivations, as well as the pressures, opportunities and rationalizations for their frauds. Through discussions about human behavior, video interviews with convicted fraudsters and interactive problem-solving, you will gain a deeper understanding of mindsets and personality traits common to many fraudsters.

A good fisherman understands how a fish reacts to different types of lures and water conditions. A good fraud examiner understands how individuals react to different interview techniques and workplace controls. Understanding more about the mindset of a fraudster will better prepare you to catch those people who travel outside the lines to enrich themselves at someone else’s expense. 

Read John's full article and find more training resources in the ACFE's latest Resource Guide.

The Fraud Triangle: Do “some men just want to watch the world burn?”

GUEST BLOGGER

Chris Ekimoff, CFE, CPA
Director, Forensic & Litigation Consulting
FTI Consulting

There are a few tenets to financial fraud that any auditor, analyst or attorney can quote chapter and verse; the most notable may be the Fraud Triangle.

Theorized by Donald Cressey in his 1973 work, Other People's Money: A Study in the Social Psychology of Embezzlement, the Fraud Triangle identifies three general elements found in the cases of embezzlement that Cressey studied: financial pressure (motivation), opportunity and rationalization.

Trusted persons become trust violators when they:

• Conceive of themselves as having a financial problem which is non-shareable.
• Are aware that this problem can be secretly resolved by violation of the position of financial trust.
• And are able to apply to their own conduct in that situation verbalizations which enable them to adjust their conceptions of themselves as trusted persons with their conceptions of themselves as users of the entrusted funds or property.

In a recent Fraud Magazine article, “Defrauding for fun not need,” Robert Kardell, J.D., CFE, CPA/CFF, Special Agent at the FBI, discusses his take on the methodology and limitations of Cressey's seminal work. In his experience, Kardell has seen multiple cases of serial fraudsters without the cliché financial pressures of unexpected medical bills, mounting gambling debts or crippling drug addictions that take their employers for a ride anyway. These cases appear to be missing one element of the Fraud Triangle: financial pressure (motivation).

Kardell wishes to warn companies and potential victims that the well-off middle manager with a country club membership and no outstanding debts still may be making off with more than his or her share. He references a case of a fraudster at a Midwestern organization with a cushy six-figure salary, company car, and enough cash to travel the world and attend major sporting events. The investigation found the fraudster was submitting personal expenses for reimbursement, reclassifying expense accounts based on his embezzlement and seeking reimbursement for mileage on his personal car (yes, even with a company car!).

Kardell believes that some fraudsters are inherently criminal, and will pursue theft and embezzlement regardless of their personal financial standing. Batman's butler Alfred may have said it best.

It’s here I believe Kardell may want to consider an alternative to adding a side to the Fraud Triangle: the inherent need to steal might not be a financial motivation to embezzle, but it is a motivation for that individual nonetheless. Without delving too deeply into criminology theory, certain individuals may seek out the "high" of stealing from their employer; whether to get the thrill of violating the rules, the feeling of power in being able to manipulate their position, or because they find themselves unchallenged and bored in their day-to-day duties.

Kardell posits that organizations currently relying on a Fraud Triangle-based model of fraud risk management should strengthen their procedures around background investigations conducted during the hiring process. Does the individual show tendencies towards occupational fraud? How do their past employers and references describe their general behavior? What additional information can be gathered regarding the individual's expense reports or other financial duties at a previous company?

In the time since the publication of Other People's Money, financial fraud and the people who commit it have increased in complexity, length and severity. So, too, has our understanding of the reasons for those events, even when they may not appear to fit the common mold. Motivation has always been a subjective element to the Fraud Triangle — a latent need to steal is still a motivator for fraud, but should carry additional consideration going forward.

Chris Ekimoff, CFE, CPA, is a director at FTI Consulting in the Forensic & Litigation practice in Washington, D.C. He can be reached through email or on Twitter (@EkimoffCPA).

Disclosure: The views expressed in this piece are those of the author and aren't necessarily the views of FTI Consulting, its management or its subsidiaries.