Everyday across the world, thousands of businesses are victimized by fraud. Who commits these bad acts? Why? And, how? In this course we are going to help you answer the questions: who commits fraud, why and how. We’ll also help you develop skills for catching them.
Fraudster Demographics
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From the course by West Virginia University
Forensic Accounting and Fraud Examination
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From the lesson
The Accidental Fraudster
Who are "accidental" fraudsters? Learn who accidental fraudsters are, the basic elements of fraud, and how devastating the costs of fraud are.
Meet the Instructors
Dr. Richard Riley, Ph.DLouis F. Tanner Distinguished Professor of Public Accounting
Accounting
Dr. Richard Dull, Ph.DAssociate Professor
Accounting
John Gill, J.D., CFEVice President - Education
Association of Certified Fraud Examiners
[Music]
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 behavioral
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.
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