Fraud Psychology 201

By David Debenham

When we discuss fraud psychology we start and end with the fraudster, and we usually focus of Cressey’s Triangle and its variants that include not only rationalization, pressure, and opportunity, but capability as well.  As an accountant and a lawyer, I can usually tell who the fraudster is by the means they use to perpetrate their fraud(s). Professionals are “comfortable” with abusing the types of techniques they use in everyday practice, such that a lawyer commits certain types of frauds, and accountants commit other types. When I was confronted with an exception to this rule recently, I said I bet the lawyer was aided and abetted by his firm’s bookkeeper, and it turned out he was.

This type of fraudster finds an opportunity in their everyday life, and is pressured by circumstance to step across (or erase) the ethical line for the greater good of the family or community that depends on them.  Once the pressure is removed, the fraudulent behavior continues because the ethical line is hard to retreat to.  

But frauds of opportunity are only part of the puzzle.  Many fraudsters have a long history of latent misconduct that only becomes apparent when their frauds are too large to hide or ignore.   They aren’t the “one-off opportunist” but are persons who made the wrong choice at a certain fork in the ethical road, and simply cannot find their way back without being caught and punished. 

Then we consider the “underachiever”.  There is a fraudster who has been told from childhood that they are gifted, and yet they go through school with grades that bely this assessment, so they cheat.  They lie and cheat at school, sports, games as a way of ensuring other assess them as they have self-assessed as superior.  The rules don’t allow them to show what they can really do, so avoiding the rules proves their ability.  They are often assessed as narcissists, psychopaths and the like because they obsess about their own image and ignore or the minimize the consequences to others.

There is also the grifter, who commits fraud in the same way that others steal or sell drugs for a living.  Fraud is simply a way to earn a living. 

But wait, this is only part of the picture.

What about the psychology of the “victim”?  Is there an employer that invites fraud by its employees by encouraging management fraud?  By treating those who join the business as family, without any vetting of the employee?   Affinity frauds are the marriage of fraudster with a certain sub-group of society?  Do fraudsters find their victims based on particular characters of the victims? If we identify a fraudster, can we identify which groups he or she might have victimized by the groups he has connected with in the past?

And what about facilitators?  Is there a certain psychology that identify certain persons as shills?  The fraudster rarely can perpetrate a fraud without help.  Some people won’t initiate a fraud, but will facilitate others in doing so, such as secretaries, personal assistants, junior colleagues.  Is it the charisma of the fraudster?  Is it that the fraudster financially rewards them? Is it that the fraudster promotes them above their abilities or otherwise charms with praise?  How do we identify the facilitators and distinguish them from “dupes”.

Dupes, or marks, are the ideal victim of fraud.  Not only are they susceptible to the fraudster’s message, but they are also likely to become “true believers” and lure others into the scheme (usually friends and family) based on their false believe in the fraudster.  Unlike the rank-and-file victim, they are the most likely to become evangelical in their belief in a fraudulent venture such that they lose everything and yet are the last to realize that they have been defrauded until, at last, the evidence becomes so overwhelming that the scales finally fall from their eyes and the fraud is revealed to them. 

Is there a type of person that makes an ideal dupe?  Do fraudsters intuitively identify them because of certain characteristics? Are there people uniquely vulnerable to fraud schemes?  Is there way to treat them to escape from such schemes and reveal the fraud before the scheme itself has run its course and victimized everyone?

As forensic investigators we need to understand everyone in the fraud food chain properly not only to allocate blame and compensation properly, but to move our practices from reactive investigations to proactive auditors.