FS online 3 Fraudster Demographics

John Gill: Is there a profile of the common fraudster? Not really, but there are common
demographics that can be analyzed to give us some insight into fraud perpetrators. Every
two years, the Association of Certified Fraud Examiners conducts a global survey of its
members about cases they had experienced. By looking at this data, we can develop a list of
the most common factors. As you can see from the ACFE survey, males commuted more
frauds than females. The perpetrator is typically well educated and a member of
management. They are a first time offender and occupy trusted positions at work and in the
community. An important concept in understanding fraud is organizational opportunity. This
is the concept that how much or how often an individual commits fraud depends on how
much opportunity he has to do so in the organizational hierarchy. Think of it this way. Who
has the better opportunity to steal large amounts of money at a bank? The teller or the bank
president? If you review the typical demographic, you see that it is consistent with upper
management at most companies. However, as the population demographics change and
organizational demographics evolve, it is expected that these characteristics will change as
well, but it is important to understand that fraud happens at all levels and the higher an
individual is within an organization, the greater the opportunity to commit fraud. Although
the fraud triangle is important in understanding some of the motivations to commit fraud, it
is not meant to cover every situation. You should also consider some of the other
motivations that cause people to do dishonest things. It can be summarized in the acronym
MICE, M-I-C-E. A desire for money is a motivating factor for many types of crimes. The
individual may have large debts or gambling losses or just an overwhelming desire for
expensive things. Fraud can be seen as a convenient way to fund an extravagant lifestyle.
For some people, the path to fraud may be based on a certain ideology. They may feel that
they are not treated fairly. For example, an individual may resent the CEO who makes tens
of millions in bonuses when she hasn't had a decent raise in years. She may feel that fraud is
a way to even the balance of wealth. It is not unusual to be coerced into committing a fraud.
A supervisor may coerce employees into inflating sales or numbers, or paying bribes to
obtain contracts so that the department will meet its goals. The employee feels threatened
or pressured to commit wrongdoing or lose his job. And finally, some fraudsters have
enormous egos. They feel that they are smarter than those around them and that they are
entitled to positions of power and wealth. These individuals see fraud as just a means to
obtaining what they feel they are entitled to. Of course, there may be several motivations
that play in any one case. The key is to understand that there are many factors that can
motivate people to commit fraud. In addition to understanding the motivations to commit
fraud, the fraud examiner and management should be alert to some of the behovely red
flags related to fraud. This chart shows some of the most common behavioural
characteristics that were present in fraud cases in the ACV's report of the nation survey. As
you can see, the two most common characteristics were the individual living beyond his
means and experiencing financial difficulties. This is consistent with the desire for money
related to financial pressure, one of the legs of the fraud triangle. The presence of family
problems or drug addiction were also common red flags, but notice some of the other
factors; an unusually close association with a vendor can be a red flag of a bribery or
kickback scheme. Unwillingness to share duties or take vacations can be signs a person is
working to keep the fraud hidden and can't risk anyone else getting involved with his or her
business. Pressure from within the organization or coercion is sometimes present as well. As
you would expect, people that have a large ego or feel entitled to wealth would have many
of the characteristics on this list, including complaints about adequate pay, complaints
about lack of lack of authority, instability in life circumstances, and past employment or
legal problems. To be sure, the presence of any of these red flags does not mean that fraud
is occurring, but they do occur in a number of cases, therefore it is certainly prudent to be
observant. Use these characteristics along with other factors to determine if fraud may
exist. Dr. Richard Dull, PhD: Financial forensics is the intersection of financial principles and
the law. It applies the technical skills of accounting, auditing, quantitative methods, law, and
research. Investigative skills are required for the collection, analysis and evaluation of
evidence. Critical thinking is required to interpret and communicate the results of an
investigation. Critical thinking, sometimes is referred to as lateral thinking or thinking
outside the box and is a disciplined approach to problem solving. It's used as a foundation to
guide our thought process and related actions. Let's consider the following case as an
example. Everything needed to answer the question "how did they die?" is contained in the
following passage. [Reading words on screen] With this information, determine how they
died. Here's a clue. List all of your assumptions from the example. This exercise requires you
to guard against jumping to conclusions while the fraud examiner or forensic accountant
needs to think critically. The direction of the investigation is often guided by assumptions.
The difficult challenge is not the questioning of the assumptions that the investigators
identified, but the assumptions the investigator is subconsciously making without even
realizing it. That's why it's important that the investigator must continually challenge the
investigative approach and outcomes to assure that the investigation is moving toward a
resolution, a resolution that stands up to the scrutiny of others. Back to the example. Most
students assume that Anthony and Cleopatra are people when in the scenario they are
actually fish. Once the assumption of people is eliminated, the solution comes much more
easily. Let's review the reasons for critical thinking. People who commit fraud do not think
like us. We need to be flexible in how we approach other people's worlds. We have to
consider each little piece of data individually because one fact may put everything into
perspective. Keep digging and gathering information until you have adequate explanations.
Our first class has covered a wide range of interrelated topics, beginning with the working
definition of fraud. From there, we looked at the financial impact of fraud on organizations
in society and then some nonfinancial problems caused by fraud. We then discussed the
fraud triangle and the accidental fraudster, both helping you better understand the thought
process of an individual that commits fraud. We finished the day with a discussion of the
skills needed to be a forensic professional. You can find more information on this week's
topics on the West Virginia University and Association of Certified Fraud Examiner websites.
Thank you for your participation today. We look forward to working with you again next
week and helping with your understanding of forensic accounting and fraud 159
00:08:28,800 examination.