FRAUDSTERS: NOT YOUR TYPICAL CRIMINAL -

BY VANESSA GREENBLATT, MCRIM, HCRIM, BA (PYSCH & CRIM), CFE 

  Questions abound about why a person would commit fraud, especially occupational fraud. Common questions asked are: “How could a seemingly successful CEO misappropriate funds?” or “How could an apparently hard-working manager alter financial statements?”. But more importantly and equally more perplexing, is why a reputedly beloved long-time employee would commit fraud. This type of fraud scenario plagues employers the most because this type of criminal behaviour seemed to come out of nowhere. In fact, any type of criminal behaviour is considered so out of character for the employee that employers often refuse to believe any wrongdoing is occurring, even when there is evidence to suggest otherwise. Fraud is a multi-faceted type of crime. It is not typically committed by bad people doing bad things. Many inherently good people find themselves engaging in fraud due to circumstances like money problems or as part of the corporate culture.

    The Fraud Triangle was first developed by Donald R. Cressey and has three components: Pressure, Opportunity and Rationalization. These three components of The Fraud Triangle can form the basis of any fraud causation explanation. Starting with Pressure, this component can be broken down into two main categories: Personal Financial Pressure and Professional Financial Pressure. According to all the research studies and all the surveys over the last 60 years conducted on fraud, Personal Financial Pressure is one of the major reasons why people begin to first contemplate the idea of stealing from their employers.[1] Personal Financial Pressure includes living beyond one’s means, family problems and addiction issues.

    Living beyond one’s means or spending money one does not have, involves purchasing items like cars, clothes, jewellery, a home, vacation property, a boat, etc., to present oneself as being well-off or wealthy. People often believe that being wealthy tells others that they are successful and someone to be respected, liked and admired. Having material things can seemingly demonstrate to others that everything in one’s life is good and problem free.

    Family problems include: getting a divorce, a child or children starting or attending university, a family member spending beyond their means causing family strife, a spouse or significant other starting a new business or has a struggling business. It can also involve a sickness in the family causing medical expenses to pile up, having to pay child support or someone having an affair and need to keep money in a discretionary fund.

    Having an addiction like drugs, alcohol or gambling, requires money to support it. As is often the case with addiction, it soon takes more and more to feed the habit which thus, entails finding more and more money to sustain it. Stealing money from a person’s company becomes a viable answer to maintaining their addiction, as it does for any Personal Financial Pressure they may be facing. Having a Personal Financial Pressure also helps explain why people normally do not stop after committing just one incident of fraud; why most can continue for years until they eventually get caught.

    Professional Financial Pressure involves the company itself pushing employees to commit fraud. Organizations put pressure on their employees by setting unreasonable goals or target numbers to meet.[2] But organizations do not stop there, going even further by creating a culture of corruption. Employees learn the behaviour and organizational climate from fellow employees and executives and often become enmeshed in it. Committing fraud, like filing misleading financial statements, is seen as the norm or “the way things have always been done”. Company interests and profits are considered of the utmost importance, therefore, fraudulent behaviour is encouraged and even rewarded with promotions and/or bonuses.

    Opportunity consists of an employee perceiving that the right circumstances are present for them to commit fraud. Essentially, the employee needs to believe that they have the knowledge, skill and confidence to successfully commit fraud without being caught. When all three of these components are present, it becomes almost impossible not to seize the opportunity to commit fraud when it arises. The temptation for these employees is too great to pass up, thus, engaging in fraud like an Expense Reimbursement Scheme, Cheque Tampering, or a Billing Scheme, for example, is considered the next natural step. Employees can also use their specific position in the company to perpetrate fraud.[3] Some examples include a member of Human Resources engaging in a Payroll Scheme, a Sales Clerk skimming money, or a Retail Dock Worker tampering with Inventory Assets. A common denominator with Opportunity is Trust. Employee’s position in the company provides them with an unparalleled level of trust to handle company assets and/or documents. Problems occur when there is a lack of oversight and someone is given too many responsibilities, thus, creating the ideal opportunity for fraud to occur.

    Rationalization allows the fraud perpetrator to justify or even excuse their criminal behaviour, thereby preserving their good self-image. Fraudsters do not believe they are inherently bad, therefore, they formulate a rationalization for engaging in fraud. In turn, this rationalization is constructed before any fraud is committed[4] because it helps one justify their later criminal acts and convince themselves that they are still a good person. The rationalization then becomes part of the motive for committing fraud. Countless rationalizations exist and most seem to be divided into two categories: a “Me” reason and a “They” or employer reason. For the “Me” reason, some examples are: “I am only taking a little at a time.”, “It’s not like I am committing murder.”, “I am just borrowing the money and have every intention of paying the company back.”, “I just need a bit to get by.”, “The money will help my family.”, or “Trying to walk the straight and narrow is fruitless; it does not pay enough.”. Examples for the “They” or Employer reason are: “They do not pay me enough.”, “They can afford it.”, “Everyone at work is doing it.”, “It is an industry wide thing, so it cannot be a big deal.”, or “My employer is dishonest toward clients and deserves to be defrauded”.

    Rationalizing one’s behaviour is a way to legitimize one’s action. It not only encourages the person to essentially ignore the fact that they are perpetrating a crime but more importantly, empowers them to continue to engage in fraud. Again, this demonstrates why fraud is normally a multiple incident type of crime, occurring over many years until the fraudster gets caught.

    A final aspect for why people engage in fraud is the shear thrill they experience when they commit fraud and get away with it. This thrill drives them to continue to commit multiple incidents of fraud. The excitement felt by each successful commission of fraud is similar to what many serial criminals feel and why they commit multiple crimes. Successfully perpetrating fraud and not getting caught is a powerful high that few people experience and one that fraudsters wish to maintain.

    It is imperative for companies to understand how and why fraud can occur. Equally vital is for employers to recognize that fraudsters are unique and do not fit they typical criminal mould. A fraudster can be the most loyal, friendly, and outgoing employee, an on-the-surface successful CEO, the seemingly helpful and trustworthy Human Resources manager, and even a PTA mom. Therefore, a fraudster is not your standard hardened criminal. Anyone has the potential to become a fraudster given the right circumstances. Oversight, objectivity, open eyes, and an understanding that people will lie to protect themselves, their good name and/or their family will all help safeguard one’s company against fraud.

[1] John Gill, video interview by ACFE, in Criminology and the Psychology of Fraud, ACFE Online Self-Study CPE Course, (n.d.).

[2] John Gill, video interview by ACFE, in Criminology and the Psychology of Fraud, ACFE Online Self-Study CPE Course, (n.d.).

[3] Donald R. Cressey, Other People’s Money (Montclair, NJ: Patterson Smith, 1973), 84.

[4] Criminology and the Psychology of Fraud, ACFE Online Self-Study CPE Course, (n.d.).