What does a Fraudster look like?
By Sherry McCourt, CFE
www.sherrymccourt.com
Monday May 18, 2009
So what does a person who steals from their employer or from people they do not even know look like?
They are capable of taking dollars to millions of dollars from unsuspecting individuals and still live among us undetected.
These people do not look like evil monsters – they look like your next door neighbor, your banker and even your minister, priest or pastor. “They” have your trust or at the very least access to people you trust. “They” are people that you would never think to suspect and you are always surprised when you learn of their deception and theft.
The Fraud Triangle is much like the fire triangle we learnt of as a child in school in that there are three elements to make a fire. There are three elements of fraud required to commit a crime. And just like you cannot always predict fire you cannot always predict fraud but you can practice prevention!
The three sides or elements of the Fraud Triangle are: Pressure – Opportunity – Rationalization
Pressure = Cause
Pressure typically means medical bills, addiction problems, living beyond ones means, greed or any financial need or problem.
These needs are typically viewed as private so the fraudster feels that they cannot share the “problem” with anyone.
Opportunity = Ability
Opportunity allows the fraudster to commit the crime virtually undetected. When there are weak internal controls and poor management oversight, opportunity is created for the employee. Other opportunities are created when the fraudster holds a position of authority or trust and does not have a procedure or control element to govern their actions.
Organizations have the ability to put in place preventative processes and fraud detection controls thus having the ability to reduce “Opportunities” for the employees to commit fraud.
Rationalization = Rationalizing or Justification
The ability one has to rationalize his behavior is a critical element in the fraud triangle – meaning when a person is able to justify in his mind that his actions (stealing) is acceptable he is able to continue to steal without feeling the “normal” guilt you and I feel.
Most rationalizing involves:
A sense of entitlement (you work hard, you are under paid etc),
Desperation (you feel like you will lose everything or you need to do it to save the family),
Or they do not see the theft as stealing but more as borrowing (you really believe that you will pay the money back before anyone realizes it is gone).
Can you spot a fraudster?
You will note that I carry the designation of “CFE” – This stands for Certified Fraud Examiner and is designated by the Association of Certified Fraud Examiners, (ACFE). ACFE is an amazing worldwide association and I encourage you to visit their website to learn more about CFE’s and the Association itself. www.acfe.com
You do not need to be a Fraud Examiner to spot a fraudster – Let’s look at some of the RED Flags of Fraud:
5 Typical Personalities
They are living beyond their means
They are controlling and unable to relax
They never take vacation or sick leave (if they do it is a short amount of time)
They have a close relationship with their vendors and suppliers
They do not like their work or performance reviewed
5 Typical Pressures
Family medical bills
Living beyond their means – “keeping up with the Jones”
Excessive Gambling
Substances addiction (alcohol or drugs)
Lawsuits (Civil, Criminal or Divorce)
5 Typical Behaviors
They appear to be buying more “things” (clothes, jewelry, houses, boats, motorcycles, etc)
They behave moody, irritable and unreasonable
They works a lot, they start coming in early and leaving late, they will not take time off or only in short increments when forced too
They start talking about financial concerns or family obligations
They turn down a promotion
It is important to realize that people will exhibit some of the signs, on occasion, and no fraud is being committed. If a person is exhibiting multiple flags from all three areas, further investigation should be completed by a trained professional.
Now do you think you could spot a fraudster?
Most fraudsters are initially flagged not by a trained professional but by an unsuspecting coworker or temp worker who happened to notice that something was “not right”, either by behavior or by accounting irregularities or both.
In the end, fraud affects all of us.
All of us pay the price for the fraudulent insurance claim or the tax evader or the person who steals from investment funds or the employee who steals monies from the petty cash fund.
In the end we are all responsible and we are all accountable for our actions.
Being a fraud examiner is me doing my part, will you do yours?
