The Profile of a Fraudster

Posted on 21. Jan, 2006 by in Accounting, Fraud & Scams

I’ve been doing a lot of research lately into fraud and have been wondering how I can share what I’ve been learning with you – without making it too boring. So I’ve decided to share with you some facts about fraud that you can use in your daily career. After all, most frauds are uncovered by coworkers and supervisors instead of auditors (which makes me feel a little useless, but o.k.).

Who Commits Fraud?
This one’s easy… anyone. The truth is, that fraud perpetrators are hardly distinguishable from other people. That’s why most frauds are never uncovered. This is also the reason why most people can’t believe when someone is actually accused of fraud – because most of the time it’s the guy in the next cubicle who talks too loud. In one study of characteristics of fraudsters, the perpetrators were compared with (1) prisoners and (2) college student. Can you guess which group fraudsters are more closely associated with? (if you didn’t get my subtle hint, its college students)

This fact helps us to realize a few things. Most importantly, a fraudster can be anyone – which should prompt you to exercise something accountants like to call “professional skepticism.” Basically, you should always consider any coworker or boss capable of committing fraud. This doesn’t mean that you should constantly be suspicious of everything he/she does – but it does mean that you should not trick yourself into thinking, “Oh, he’s such a great person – I’m sure he’s got a good reason for ____” This also means that it’s almost impossible to identify fraudsters during job interviews.

Why People Commit Fraud?
There are categorically three reasons why someone typically committs fraud – and these reasons make up the fraud triangle (shown here). Pressure usually comes from two places; inside the employee’s company in the form of job pressure or the pressure to meet deadlines and revenue goals, and external pressures such as family life, financial troubles, etc. The opportunity is the way that the fraudsters believe that they can get away with it – and therefore it is primarily this part of the fraud triangle that companies work to eliminate by enforcing certain types of financial controls such as segregation of duties. And rationalization almost doesn’t have to be explained – most of us are very good at it. But most of the time the argument is “My company doesn’t recognize my efforts – they owe me.”

But the interesting thing about the fraud triangle is that a fraudster doesn’t need all three pieces in order to committ fraud – in fact, he only needs one strong piece. If a company does it’s best to discourage fraud and eliminates the opportunities to committ fraud, a fraudster that has enough rationalization will find a way to get his “fair share.”

In conclusion, it is important for each of us to know how to spot a fraudster in order to help our own businesses succeed. We are the people working with these individuals on a daily basis and are more likely to uncover any fraud than any other person or auditor.

Fraud, Fraudster, Criminal, Accounting, Auditor

No comments.

Leave a Reply