COMPLIANCE
Deconstructing a fraudster
W
hat part of committing fraud is a good idea? For fraudsters, in
the short term, the answer is everything. However, in the long
run, the answer is nothing. The reason for this is that over time
the weight of deception will cause a fraud to collapse. On the surface, a
fraudster has the advantage of being proactive in building their spin and
deception. Invariably, they succeed at exploiting the window of
opportunity to sell their fraud scheme to their victims. Below the surface,
as the threads of fraud are pulled and unraveled by either victims and/or
investigators, the fraudster is at a disadvantage because the window of
opportunity closes and the deception is exposed.
If fraud is ultimately destined to collapse
and fail, why do people commit fraud? The
answer is that, for whatever reason, they
do not consider the consequences of their
actions or they do not believe the conse-
quences apply to them. If individuals
inclined to commit fraud understood that
inevitably they would actually deal with
the consequences of their fraudulent
actions, and that such consequences
would be negative, they would more likely
be deterred from committing fraud.
Deconstructing a fraudster to prevent and/
or disrupt fraud requires understanding.
You must understand the fraud risk, the
mindset of a fraudster, the attributes of a
fraudster, the fraud crime problem and the
consequences of fraud. When you can
place risk, mindset, attributes, the crime
problem and consequences in context with
each other, you can develop detective and
preventive measures to deconstruct a
fraudster.
Understanding fraud risk
In our personal and professional lives, we
are all susceptible to falling victim to fraud
for a variety of reasons. We tend to be gull-
ible about “too good to be true” schemes
and are prone to lack situational aware-
ness for the warning signs of fraud. The
three basic risks that drive fraud are the
following:
1. Trust
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2. Lack of control mechanisms that
provide opportunity
3. Lack of deterrence or understanding
about consequences
Trust is the foundation for building per-
sonal and professional relationships. Trust
is also a fraudster’s best friend. Trust facili-
tates opportunity because it enables a
fraudster to circumvent control mecha-
nisms. Misplaced trust buys time for a
fraudster to keep the window of opportu-
nity open and to perpetuate their decep-
tion. Differentiating between meaningful
relationships and fraud requires under-
standing and situational awareness. Under-
standing the motivation and rationalization
used by fraudsters to justify their actions
can be a critical component in recognizing
the risk of fraudulent behavior.
Situational awareness is being aware of
your physical surroundings. It requires
being vigilant in identifying potential
threats and dangerous situations. Accord-
ing to Stratfor, a leading geopolitical intelli-
gence service, being situationally aware of
your physical surroundings is more of a
mindset than a skill. It is the recognition
that threats exist and taking responsibility
for your personal security. One of the key
best practices is to trust your gut or intu-
ition. If a person or activity is out of place or
unusual, trust your instincts and be atten-
tive for potential danger.
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The same concept about situational aware-
ness can be applied to fraud. It requires
being vigilant in identifying and mitigating
potential fraud risks and schemes. Being
situationally aware of fraud is more of a
mindset than a skill. It is the recognition
that you are constantly vulnerable to fraud.
You have to accept responsibility for your
fraud vulnerability. The key best practice is
to maintain your objectivity about trust,
reasonableness and temptation. You must
be objective about establishing trust rela-
tionships and not allowing such relation-
ships to circumvent control mechanisms,
such as separation of duties. You must con-
sistently assess the reasonableness about
situations and scenarios with which you
are presented. You must remain objective
about being lured into the temptation of
financial enrichment or a false sense of
security to scenarios that sound “too good
to be true.”
Strong control mechanisms and monitoring
limit the opportunity to commit fraud and
lead to fraud deterrence. A perception of
detection is more likely to cause a potential
fraudster to consider the consequences of
their actions. If an individual thinks that
internal controls are in place that will detect
fraud, they will be less inclined to “cross
the line of integrity” and commit fraud.
Understanding the mindset
of a fraudster
I have investigated fraud for 45 years and I
have been teaching fraud awareness since
1981. In my experience, a fraudster’s mind-
set is driven by five factors. Those factors or
elements are as follows:
1. Integrity
2. Opportunity
3. Incentive or pressure
4. Rationalization or attitude
5. Capability
The five factors or elements build upon each
other. An individual’s integrity is the start-
ing point . If a person possesses a great deal
of integrity and has limited opportunity,