(By Jack Bigelow) Many human-made disasters (including fraud) on this planet can be traced back to some form of thinking at a critical decision point that goes something like this: “I’m good. My risks are low. I’m going to go for it.” But this misplaced confidence could be eclipsing a residual anxiety in the unconscious state of mind of many an executive. Neuroscientist Tali Sharot remarked, “We are more optimistic than realistic; but we are oblivious to the fact.”

We want profit and growth, yet many a company from Enron to Theranos to FTX planted the malevolent seeds of fraud during their good days. (And blissfully assumed that they were not vulnerable.) So, could you be at risk? Could you? Especially in thinking about fraud?
Oh, to be able to gather statistics on how often that pattern of thought preceded disaster in the sordid list of very expensive and highly embarrassing incidents of corporate fraud around the world.
Some questions to ask yourself (Be honest, now!):
• How fraud-resistant is our organization? Or our clients’ organizations?
• How do I know the level of fraud resistance we enjoy?
• Is the culture of our firm one of above-reproach ethical behaviors? Where are we on the spectrum?
• Where are our weak spots for fraud?
• Do we have tangible resources to encourage the whistle blowing of risky mischief? To buttress our system of internal hard controls with the soft controls of people-focused actions?
• How strong is our ethical ecosystem? Can it withstand a beckoning temptation to take advantage of internal control weaknesses?

The graveyard of companies ruined by poor “soft” controls (those based on psychological materiality)—the weakest links–have ripples that spin out to their broader systems. This could be you.

If this post jars your otherwise serene outlook on fraud risk in your organization, you must check out a virtual conference coming in mid-February, 2023. It is the Fraud, Cyber & Governance Conference: Creating a Fraud-Resistant Organization. This conference will be held February 15-16 virtually, sponsored by Financial Executives International, Behavioral Forensics Group, LLC, and the University of Dayton Center for Cybersecurity and Data Intelligence. CPE-qualified (8 hours), the 2023 FEI/B4G/UDCC Conference topics include:
o Reframing Your Understanding of Fraud;
o Why Does Fraud Happen?
o The Escalating Threat of Cyber Fraud
o Emerging Issues in Fraud
o Fraud Experiences
o Tools and Competencies to Prevent/Deter/Detect Fraud
o Governance: Creating and Leading a Fraud-Resistant Organization

With world-class speakers (see the agenda), The Conference will blend thought leadership with concrete action suggestions and experiences. Click on link:

https://financialexecutives.org/fraud2023

BEHAVIORAL FORENSICS GROUPTM LLC

The Behavioral Forensics GroupTM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives. The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics GroupTM LLC. Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4GTM is a premier, pioneering practice in this field.
We are blogging at: http://www.bringingfreudtofraud.com

(What We Learn at a Table Can Be Very Important)

(By Dr. Joseph W. Koletar)Frank Keating was an FBI Agent from 1969-1971. He was also the Governor of Oklahoma from 1995-2003.

One would think being a Governor would be a full-time job, but in June 2001, Frank Keating took time to play an artificial, but important, game. Organized and directed by Johns Hopkins University and the Center for Strategic and International Studies, the game was called “Dark Winter,” and involved former Senator Sam Nunn, former FBI Director Bill Sessions, and former CIA Director Jim Woolsey, among a dozen others. The object of the game was simple – deal with an outbreak of smallpox in Oklahoma City. The goal of the participants, playing the roles of state and Federal officials, was to manage and try to contain the virus, although the game design had it eventually spread to a number of other cities and even countries.

Per a recent article in the Wall Street Journal (1), the Dark Winter exercise quickly mutated once the scenario was presented to the participants: Where were needed medical supplies, who controlled them, who needed them, why weren’t more available; what was the relationship between state and Federal officials; what civil liberties were to be affected to contain the virus, and who could order compliance?

These and other issues had to be sorted out in the context of the game, but Governor Keating had bloody and painful experience in such matters: Shortly after he took office as Governor, a massive truck bomb tore through the Oklahoma City Federal Building on April 19, 1995, killing 168 people and wounding hundreds of others. Conversely, the Dark Winter participants were playing an unrehearsed, artificial game, but experienced the angst and friction common to any ad hoc group slammed with a crisis: Frank Keating had lived it in real time and with real casualties six years earlier.

As the Dark Winter game played out, he offers the following observations in his insightful article:

• There is an assumption that officials at various levels and varied roles will quickly “fall into place” and perform in a coordinated manner, with the Federal government taking the lead.

• In reality, during the game there were repeated disagreements between “state” and “Federal “officials as to what the local population could be told. As a result, people reacted with suspicion, fear, confusion, and panic. Instinctively, Keating reports, “Federal” officials wanted more intelligence as to the source, shape, dimensions, and dynamics of the outbreak. The “military” participants seemed particularly susceptible to this mindset.

• All response is local. Although the Federal Building was the target of the bomb, it was local police, firefighters, and medical personnel who made critical early decisions as to rescue, treatment, and investigative matters. Later, observers coined the term, “The Oklahoma Standard” to refer to the superb degree of inter-agency cooperation that took place in the hours and days after the bomb detonated. To quote Governor Keating, “Locals know the geography, infrastructure and resources that shape the immediate response.”

• To their credit, the state and Federal resources followed the lead of the local agencies once they too became involved. Keating notes that the Federal government is well suited to develop information as to the interstate and international dimensions of the issue at hand without over-powering the role and resources of local and state entities. In his words, “Federalism works.”

As we witness the COVID-19 pandemic play out, we see elements that support Governor Keating’s analysis: confusion as to who does what, ego-driven turf disputes, public anxiety as to what the future holds, and more.

Luckily, we are unlikely to see many pandemics in our lifetimes. But the lessons learned can usefully be applied in smaller, though highly important, situations. Area hospitals routinely join forces in conducting “mass casualties” drills. Schools and local law enforcement have great experience in developing plans for “active shooter” events.

These are examples of crisis management gaming, otherwise known as
“table-top” exercises. Often constructed and executed by outside consultants they are meant to gather key officials and present them as a possible crisis scenario. Participants are expected to realistically carry out their roles under time and uncertainty contains, as they would likely encounter were the situation real.

The result almost always unearths flawed assumptions, confusion as to roles and resources, communication gaps, and more. The exercise is not conducted to assigning blame; it is a mutual effort to learn and improve. Such exercises are useful, fairly inexpensive, and applicable to organizations great and small, be they public, private, or not-for-profit.

Yet, for all its apparent utility, a recent Bloomberg Business Week article (2) notes that corporate risk managers were viewed as “back office” shoppers for insurance rather than serving as adequate resources, to deal with primarily natural disasters. The article further notes that there were only about a dozen small academic programs that dealt with the subject at all.

The article notes the position actually involves a range of skills: analytical ability, media relations savvy, the ability to deal with attorneys, insurance companies, communications skills, and a fair degree of financial literacy. The article further advises that while 80 university programs dealing with enterprise risk management may seem significant, at the same time there are more than 5,000 accounting programs. One industry source predicts there will be “millions” of such risk management jobs in the future.

(The Behavioral Forensics Group, LLC offers multi-disciplinary advice on fraud and risk issues, and also provides crisis management planning, training, and evaluation services.)

(1) “War-Gaming the Next Pandemic,” by Frank Keating, The Wall Street Journal, 4/20/20, p.A-17.
(2) “Wanted: More Risk Managers (The pandemic spurs boards to seek experts in crisis planning and oversight”), by Arianne Cohen, Bloomberg Businessweek, 4/20/20, p. 36.

BEHAVIORAL FORENSICS GROUP^TM LLC 

The Behavioral Forensics Group^TM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

(Caution – mildly graphic content; unethical surgery)
This is the second of two blogs written by B4G Founding Partner David (Daven) Morrison, MD. on an historic example of medical fraud based on fear. The first blog is In the Pandemic, (see link in next paragraph) dated July 28, 2020 on this blog site. The blog below explores more on how the perpetrator did what he did, how it ties to victims, regulatory agency (the AMA) and fear.

(By Daven Morrison, MD) In our previous blog , we explored how frauds and cons in general are common in people who have serious illness, and or fear of serious illness. The current pandemic makes for an environment vulnerable to many frauds as the emotions around contagion are high. We described COVID-19 contact tracing as an activity ripe for securing fraud-enabling information, and offered tactics for avoiding that risk. And we explored an older and truly tragic story of fraud from 100 years ago. It originated in the Midwest, had its greatest run in Kansas, and then played out like a classic cops and robbers pursuit, but with the robber being a sham surgeon and the cops being the AMA. The fraud was surgical. The surgery was inserting goat gonads into the gonads of men. The surgeon was John R. Brinkley, and the man who pursued him was Morris Fishbein M.D.

There were several tragic elements to this evolving catastrophe. First, Brinkley knew how to find weak points in middle-aged people. Second, he did this surgery poorly. Third, his surgery had serious consequences including death. And lastly, he advertised – he did this part really well. He did this gruesome surgery in poor conditions with poorly trained staff and a marketing machine to hide his mistakes. Mistakes which today would result in lawsuits and prison. This came together as a curious mix of events. After some early “successes” in which sexual function did return, he claimed them effective, turning them into true marketing successes. And, so, his procedure became extremely popular. His hospital filled to capacity and multiple additional sites and procedures were filled. Sadly, women were added for their fertility needs. Fertility fears stoked the demand. Again there was an early success story. Again, it was to be a scam.

Yes, of course, it didn’t work in the long term, either. As Shakespeare put it, “but at the length truth will out,” and incompetence eventually gets exposed.

And “yes,” unfortunately, many were maimed and some even lost their lives due to the procedures. The men and women were operated on in a similar manner with no evidence for the intervention to work; their families were unable to hold him accountable. In addition, he was very popular and his riches grew and grew. In fact, he was able to acquire a very powerful radio station: KFKB “Kansas First Kansas Best” which was heard across the Midwest. The ACFE RTTN notes one of the reddest of the red flags of fraud behavior is living beyond one’s means. He did definitely follow this pattern.

Enter the American Medical Association (AMA).

Needless to say, other physicians in the country came to be suspicious as they were not able to reproduce what this “Doctor” had done. The evidence for harm also became harder and harder to ignore. At the time, there was no set of standards strong enough to enforce revoking his license. Word of the consequences ultimately reached the ear of Morris Fishbein MD, and he leveraged the full power of the AMA (during his tenure as President of the AMA from 1924 to 1950.

Dr. Fishbein’s career began as a physician and because of his interest in all things including “quackery,” an opportunity developed for him to have a leadership role as an editor of the Journal of the AMA, also known as JAMA. First becoming aware of Brinkley in 1920, Fishbein was quite alarmed. And the more Dr. Fishbein learned, the more concern he had.

The Chicago medical establishment became alarmed when Brinkley openly made plans to move his enterprise to Chicago after a successful publicity debut there in1920. Although popular with the public, there were too many medical questions. And so, in near unison, Chicago turned him away and the Journal of the AMA (JAMA), kept writing skeptically about the new wonder therapy.

The battle was subsiding, but Fishbein wasn’t. Via JAMA, Fishbein pursued him for what Pope Brock describes as “the greatest cause of his career: the professional extermination of John Brinkley, MD (1)” . Out of Chicago, over time, AMA investigations began which ultimately led to a very public case of medical license revocation.

Taking place over a series of hot days in 1930 in Topeka, Kansas, Dr. Brinkley’s own testimony did himself in. He was unable to explain how his surgery worked or how it made a difference in the health of his patients. So, he panicked when William Smith, the attorney representing license removal, did the following:

(From Charlatan (2), Pope Brock,  Three Rivers Press)
Brinkley reaffirmed that this surgery held “no danger”—whereupon Smith snatched up a fistful of documents and held them high. They were death certificates signed by Brinkley, all belonging to patients who had succumbed at this clinic—men and women, young and old. Forty-two people, some of whom weren’t ill when they arrived, had died either by his own hand or under his supervision. Six at least were victims of goat-gland operations gone awry. The others were variously dead of nephritis, peritonitis, appendicitis, “syptic thrombus,” and gangrene. If in 1930 that didn’t make Brinkley a murderer in the eyes of the law—and it didn’t—well, wasn’t that a scandal in itself? The man was running a corpse factory.

In fact, Brinkley did more than panic. In a fit of hubris he offered to show his professional colleagues his hospital and his procedure. They accepted. They saw what he was doing. And they immediately shut him down. His license was revoked.

In the case of his surgeries, eventually “Dr” Brinkley was found guilty of malpractice, forced to pay stiff financial penalties, and his operation shut down. Sadly, but perhaps justly, he died penniless. In the long term the law won.

Today his infamous hospital lies at the bottom of a manmade lake near Milford Kansas.
Let’s hope the efforts of those defrauding people currently during COVID-19 reach similar ends.

Summary Thoughts:
What was not noted in this story above was that Brinkley had a tragic life. Born poor, out of wedlock, he was essentially raised by elderly parents who died young of preventable illnesses. His biological mother also died young. He knew he wanted to be a physician, and as he pursued a degree, he learned early on the power of people’s desires to be relieved of their suffering. To this point, his story is similar to many who enter health care.

Unfortunately, he also learned about how vulnerable people are to anything pushed by an expert. He also learned early on about the vulnerability of those losing their sense of self in middle age. In men, it is fear of losing their virility; in women, fertility. Brinkley preyed on this common fear of loss.

In discussion with our team, Dr. Joe Koletar noted the con man works on the psychological makeup and doesn’t reverse engineer. He has a point. I would argue Brinkley reversed engineered a “too good to be true” story for everyone based on his early life experiences. Adding the authority of being a physician brings more gravitas, and surgery, which leaves a scar, clearly documents that the doctor did something. As Koletar says, by merely bringing the authority of the law, every traffic cop readily gets license and registration as a result of a traffic stop: “everybody provides that” he notes.
Dr. Koletar adds more to consider in our current times. As the con turns, Koletar warns the fraudster may add on a sense of guilt. In our original story of releasing personal information for tracking the pandemic, the fraudster may say: “Well most folks in Lake County Illinois are helping their neighbors. Won’t you?” Koletar knows what he’s talking about. This would also be an emotional ploy: More sophisticated than playing to raw biological affects, this plays to higher more complex emotions of altruism, community, and guilt. But it’s a bright shiny thing intended to distract.

Unfortunately, the CDC and other groups are currently at risk of being politicized as data is altered and leadership is weak and inexperienced. Most outrageous to me, as someone who trained in the era of AIDS, is how Dr. Anthony Fauci, perhaps the best resource in the world for this kind of problem, is vilified. Tragically, he and his family regularly receive death threats. All of this blends with impatience to return to normal, hyper-partisan politics and politically-based distrust of the intentions of the public health experts. It becomes a tragic stew of ongoing contagion. The Rand Corporation has effectively reviewed this in an analysis called Truth Decay . They note the consequences reach beyond fraud and into the undermining of democracy itself.

The corpse factory has returned but on a national level.

Notes:

1.  Charletan, p 61.  The full title: Charlatan: America’s Most Dangerous Huckster, The Man Who Pursued Him, and the Age of Flimflam.  It is a delightful book to read for those interested in this curious era of con men, their victims, and medical history.
2. Charletan, p. 154.  The book was adapted into a documentary featured at Sundance entitled, Nuts!

BEHAVIORAL FORENSICS GROUP^TM LLC 

The Behavioral Forensics Group^TM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

(Caution: Graphic content)
(By Daven Morrison, MD) Recently, an alert about a local fraud threat landed in my inbox. Tied to the pandemic and contact tracing, it triggered a memory of another ignoble health- related fraud.

The fraud in my inbox was straightforward. Under the guise of tracking COVID-19 cases, residents were being asked for personal information such as social security numbers. In contact tracing, the purpose is straightforward: Follow and track the spread of an infection to limit the effects of an epidemic. Because of the broad awareness, the fraudsters had a large population to try to ensnare—basically everyone.

In this case, even though it was a local alert, for those of you who follow B4G and are interested in fraud, it makes sense to pass along the precautions. And then we can discuss a relevant, even worse story and how it all works psychologically.

Here is the alert’s guidance on what to avoid.
A contact tracer will never:
• Ask for your Social Security number;
• Ask for money, bank account or credit card numbers, or any other form of payment;
• Ask for your immigration status; or
• Threaten consequences of not participating or answering questions.

Because it was health related, the swindle could leverage another emotion commonly used when manipulating people around their health, fear. Many are scared about becoming infected and want to help limit the spread. So, as the fraudsters work to earn trust in their victims, they highlight these two factors. In the context of a genuine medical threat, the inherent cruelty and even sadism saddens me.

Why does this happen with fear? As discussed in our text, The A.B.C.’s of Behavioral Forensics, basic human emotions play a role in all human behavior. Therefore, they play a role in both the perpetrator and the victim. As a novel tactic, our text explored the role of emotions in the victims of fraud. Using their experience we can “reverse engineer” the tactics of the fraudster. They are ancient tactics.

With the Coronavirus threat, one of the core emotions (and what the fraudsters are preying on) is fear of contagion. Take a moment and think about this. A year ago at this time, a fraud scheme of this sort would not have had a chance. But in the current environment, the threat, or rather the odds of success of being a victim of a fraud scheme are high. What is cruel about it is the idea of preying upon vulnerable people. Vulnerable, and the fraudsters know this, because the vulnerable are:
• lonely – this county in Illinois has been sheltering in place for over three months,
• likely not sophisticated enough to be able to recognize the deception, and even worse,
• quite possibly are part of the demographic who are most at risk and thus more scared than others.

This reminds me of another moment when being sick and scared overlapped. At that time as well, fraud blossomed like the corpse flower. The story is an incredible one of a con artist and the growth in power of the American Medical Association (AMA). It lies at the intersection of virility, goats, and the dawn of AM radio conglomerates. Intrigued? Read on.

In Charlatan [1] (Three Rivers Press 2008), Brock Pope outlines how John R. Brinkley was able to create a thriving industry of surgeries, hospitals, and even, near the end of his crime spree, a massive communications network. He was a malignant entrepreneur, and his final steps outlined a pathway for future multimedia organizations.

What “Dr.” Brinkley preyed on was the vanity and the fear of aging that comes to men when their virility wanes. It is similar to the emotions behind the modern financial success of Viagra. But unlike with Viagra, which came about because of an unanticipated side effect of a medicine designed for another illness and became an industry leader in another, the science for this treatment was horrible.

“Dr.” Brinkley was a conman, first and foremost, and seemed to skip along outside of detection just a step ahead of the law and of regulations. He figured out men’s capacity to have sex, or maintain an erection, which for many begins to decline in their 40s and 50s and they will be desperate not to lose it. Sexuality, and virility is an important aspect generally in both genders, and this charlatan claimed to have a cure. His cure is the graphic/gruesome part of the story. (Caution, this story is medically graphic.)

“Dr. Brinkley” learned early in his conman days that this vulnerability in men could become quite lucrative for him. Through a series of poor decisions and illogical conclusions, he “discovered” that if he cut open the scrotal sack of a man, and inserted an entire (or part of) a goat testicle, virility would return. He had one success. Then he promoted the heck out of it.

Was it a legitimate treatment?

Yeah, right.

And “No” it doesn’t work and never would. Kind of like malaria drugs for the Pandemic never will work.

My next blog posting will explore more on how Brinkley did what he did, how it ties to victims, a regulatory organization (the AMA), and fear.

[1] The full title of the book is Charlatan: America’s Most Dangerous Huckster, the Man Who Pursued Him, and the Age of Flimflam. It is a delightful book to read for those who are interested in con men, their victims and medical history. The book was adapted into a documentary featured at Sundance entitled Nuts!

BEHAVIORAL FORENSICS GROUP^TM LLC 

The Behavioral Forensics Group^TM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

(By Vic Hartman, J.D., CPA, CFE) Law enforcement and regulators are reporting a record number of frauds relating to COVID-19. In fact, the Federal Bureau of Investigation’s Internet Crime Complaint Center (IC3) reported an increase in complaints from hundreds a day to more than a thousand a day.

Victims are experiencing tremendous fear and anxiety, thereby making them more vulnerable to fraud. Many new frauds are evolving due to the COVID-19 crisis. Fraudsters are also exploiting old frauds that have been repurposed for COVID-19. The federal programs under the $2 trillion U.S. Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are particularly vulnerable to fraud. Through awareness, we can prevent our businesses, colleagues, and clients from becoming victims to these frauds. Although there are many frauds associated with COVID-19, below are some of the many frauds being perpetrated.

1. Prepayment schemes are costing purchasers millions of dollars. These fraudsters are selling medical equipment and supplies they do not have. The fraudsters are often brokers representing they have dependable suppliers. Unfortunately, hospitals and governmental entities desperately needing these items are falling victim. The fraudsters may also pose as a known and trusted vendor. Victims’ funds may be sent out of the country and are likely nonrecoverable.
2. The bogus sale of vaccines, COVID-19 tests, and antibody tests is an emerging fraud. The availability and reliability of these items is rapidly changing. Due diligence is required before purchasing these items. For example, at the time of this post, antibody tests were still being researched by the National Institute of Health, and the Food and Drug Administration had only approved a limited number of vendors under its emergency use authorization. This test involves a pinprick of blood and can return results quickly. Such test results would prove very valuable to employers that have employees working in high risk jobs. Validation that someone is immune from COVID-19 may evolve into an “immunity passport.” Frauds related to vaccines and tests will likely proliferate in the coming months.
3. Stolen personally identifiable information (PII) to commit financial frauds is nothing new. However, fraudsters’ promotion of COVID-19 health care products and services can be used as a pretext to gather victims’ PII. This information can be used to bill insurance providers for services not rendered as well as other financial frauds.
4. The CARES Act loan provisions for large corporations are at risk for fraud. The Act provides for $500 billion to be set aside for big businesses with $50 billion earmarked for the airline industry. A corporation may materially misrepresent information in its loan application or misapply loan proceeds. This fraud may be detected by corporate whistleblowers seeking an award under the false claims act.
5. Fraud associated with COVID-19 loans administered by the Small Business Association is expected to be common. The Paycheck Protection Program will guarantee loans up to $10 million to eligible businesses and the loans will be forgiven if the businesses maintain payroll for eight weeks at the employees’ normal salary level. Illicit PII is abundant on the dark web. Fraudsters will likely use this and other information to apply for loans and benefits. These frauds are currently in progress and the extent of losses will not be known for months or years. In a different scheme, SBA loan brokers may ask for an upfront fee to assist with facilitating a loan that will never materialize.
6. Hoarding and price gauging of certain medical supplies will be prosecuted. On March 23, the President designated certain COVID-19 related medical items as protected under the Defense Production Act. The Department of Justice has indicated it is targeting bad actors who amass critical supplies either far beyond what they could use or for the purpose of profiteering. The Act also outlaws selling these designated items in excess of prevailing market prices. See 50 U.S.C. §§ 4512, 4513.
7. Fraudsters are promoting bogus health remedies to those posting COVID-19 symptoms on social media. Social media also provides a rich environment for fraudster to mine PII to assist in computer intrusions and financial frauds.
8. E-commerce sites are selling virus-fighting products with exaggerated claims or not delivering any product at all. For example, the popular website Shopify.com has reported that it closed more than 4,500 sites related to COVID-19 for the vendors not being able to back up their medical claims. On some websites, vendors are requesting payments via cryptocurrencies.
9. Phishing schemes have been repurposed for COVID-19 scenarios in an effort to compromise electronic devices or introduce ransomware. Individuals have a strong need for COVID-19 related information. Fraudsters posing as authorities such as the World Health Organization or the Center for Disease Control will send unsuspecting emails purporting to contain links to valuable information. One bad click could compromise a victim’s computer.
10. Fraudsters are promoting fake charities that purport to provide assistance to COVID-19 victims. There are a lot of excellent charities providing much needed assistance to COVID-19 victims. Every donor should take the time to conduct due diligence to ensure the entity to which they are giving is legitimate.

We are in in this together. Feel free to reply with your insights into the COVID-19 frauds.

BEHAVIORAL FORENSICS GROUP^TM LLC 

The Behavioral Forensics GroupTM, LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

(Editor’s Note: This is the second part of a two-part blog posting by Drs. Sridhar Ramamoorti and Daven Morrison. The first part is in a blog posting preceding this one, written by Dr. Ramamoorti. This posting is by Dr. Morrison)

(By)  Daven Morrison, MD  The rawness of emotion means the ripening of the field for fraud.

From self-poisoning with anti-malaria drugs, to the belief that Jesus’ blood is an antiviral, to the deadly anti-viral protocols of drinking disinfectant, the false assertions about how to avoid Covid-19 have gone from humorous to odd but harmless, to diabolical and even life-threatening. And it doesn’t take a psychiatrist like me to recognize how it’s done. When emotions are raw, there is an ebbing of rationality and this unwelcome combination makes us vulnerable. We start believing every conspiracy theory that has been concocted because we are not thinking effectively any more.

“Never before.” “Catastrophic.” “Horrific.” These descriptions of the pandemic provoke strong feelings just by standing alone as alarming phrases. As we follow the disease’s path, the story gets worse. People with severe cases progress from feeling fine to terrible, soaking sweats, to limitations on breathing in a matter of hours. The virus is so easily transmittable that patients must isolate and caregivers must shield themselves to avoid contagion. The treaters retreat behind goggles, masks, and other scary-looking PPE garments, further compounding the patients’ sense of abandonment and fear. “My death is near,” they think. Caregivers are exhausted and frightened and hidden behind the PPE, conditions hardly conducive to being comforting to their patients. All of this reinforces the contagion of fear. It is a vicious cycle where fear begets more fear.

We who follow the role of affects (i.e., basic emotions) in fraud know how predators use them to bypass the healthy skepticism that Dr. Ramamooti mentions in Part 1 of this series of two posts. In the affinity scams of trusting, gullible people, these predators (think Madoff) leverage the relaxing and trusting emotion of enjoyment (an affect when one feels serene or peaceful) to get prospective “clients (victims)” to let down their guards. In the case of Mr. Madoff, the trusting emotion feeds a cannibalistic pyramid scheme.

In this case, we psychiatrists have common ground and improbable pact of accord with those who follow the numbers. From our work in medicine, we know the geometric escalation of epinephrine and of cancer. In the first case, the alert system rouses quickly enough to ward off a threat. In the second case, cell growth outstrips the body’s ability to oxygenate and nourish. The cancer is too hungry and thirsty and cannot be contained; it overwhelms the body’s natural defenses. Translating this micropattern to global scale, we are seeing a virus that is hungrier than the health systems of New York City, Italy, Spain, and who knows how many more places will be afflicted and overrun.

This is simply a matter of supply and demand, fed by fear and distress for most people. Given this reality, we might think that the positive emotions such as enjoyment are nowhere to be found, but that would not be true. There is realistic optimism around us. People are still hopeful.
But there is a dark side to this situation too: Some of these hopeful people are planning fraud.

Dr. Ramamoorti’s and Barry Epstein’s paper on Dark Triads notes the presence of wolves among us lurking in finance departments and in business operations. They hide behind their spread sheets and social engineering to harvest the trust of others and our financial processes. Then they strike, using the trust they have earned, to steal funds fraudulently. And this is in normal times.

Sam Antar wrote in endorsing our book (A.B.C.’s of Behavioral Forensics, Wiley, 2013) this acknowledgment: As a fraudster, I succeeded for almost two decades because I understood how to exploit the psychological and emotional weaknesses of my victims. The incidence of pure psychopaths, mostly men, has been estimated to be roughly 1-2% of our society. Between 2-3 million psychopaths are among us with heads up and minds clear, planning to exploit this pandemic crisis (it is a slight relief that the majority of them are in prison; but then the fabulously successful ones may well be in the C-suite of the largest corporations). Add trillions of dollars of economic stimulus, a terrified and distressed populace, a huge industry (health care) sounding all possible alarms about needed supplies, and we have fertile soil being seeded for fraud.

So, what can we do to prevent fraud?

One of the most obvious prevention steps is to educate yourself and your team on the normal role of fraud. The time is right to grow your muscles in understanding and dealing with the three common negative emotions: fear, anger, and distress. In these early pandemic days in the United States, fear is a very important emotion to manage. We know a lot after taking a closer look in peacetime at warriors and what we have come to understand as PTSD. We have seen it with AIDS. To learn more about the lessons learned, read and the role of fear read Dr. Morrison’s LinkedIn article,  “Covid, Costco, Cleanliness and Kindness. “One of the most important lessons for fear also applies to anger and distress.

As President Franklin D. Roosevelt stated, “We have nothing to fear but fear itself.” It is time for us to learn to recognize the feelings of fear, but to manage it away from overwhelming our ability to effectively problem-solve the source of that fear. As we observe in our book, A.B.C.’s of Behavioral Forensics, affects are data. Fear is data, even when it grows logarithmically. And when fear is viewed as data, it becomes a tool, more than a threat.

When we understand fear, we can control it, otherwise it will control us.
Bruce Dorris, head of the Association of Certified Fraud Examiners, has commented that the effects of COVID-19 look like “a perfect storm for fraud”.  On April 18, 2020, The Economist has an article warning that “the economic crisis will expose a decade’s worth of corporate fraud.” https://amp.economist.com/business/2020/04/18/the-economic-crisis-will-expose-a-decades-worth-of-corporate-fraud

BEHAVIORAL FORENSICS GROUP^TM LLC 

The Behavioral Forensics Group^TM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

(Editor’s Note: This is the first of a two-posting blog by Drs. Ramamoorti and Morrison. The second part will be in a posting immediately following this one.)

(By Dr. Sridhar Ramamoorti) My Behavioral Forensics GroupTM, LLC partner, Daven Morrison, MD, recently leveraged his usual role as a concerned doctor, psychiatrist, and public intellectual who’s keenly aware of his civic duty in this time of global pandemic. Hitherto we have been mostly concerned with the dire economic fallout; Dr. Morrison has added to our knowledge of potential social and behavioral implications in dealing with this scourge.

Knowledge is power. We can only fight dangerous ignorance (darkness) with knowledge (light). And ignorance can be dangerous when the light of true knowledge is limited or absent. The Rand Corporation has a name for it, Truth Decay. We live in a time of an asymmetrical relationship between the rapid creation and lethargic verification of “fake news.” And so the fertility of the human imagination eclipses our comparatively limited, ploddingly sluggish fact-checking capabilities and patience to execute them. This undesirable asymmetry encourages mendacity to win over probity and morality, with evil overwhelming the good. Whether the “breaking news” is that “the sky is falling” or imagined menacing wolves lurk outside the village, the constant drumbeat that “present fears are less than horrible imaginings” (Wm Shakespeare in Macbeth, Act 1, Scene 3) leads to public tune-out and apathy making it a form of informational fraud.

Instead, we surely want truth and goodness to prevail in times like these. But truth, goodness, and effective public judgment come from active participation in political activity, especially in a democracy. That activity requires awareness which in turn requires alertness and eternal vigilance. Such participatory actions are discouraged when significantly powerful segments of the public fall victim to the darkness of ignorance.

So, what can we do about this dilemma? In our B4G work as a partnership, we start with what we know and that knowledge frames how we think about what to recommend. “What we know” in this case, means what we know after testing what we read and hear against all the factors involved in critical thinking. If we act on our professional biases (without considering them as potential biases), we are not as powerful as when we share perspectives and gain a refined and more reality-based solution. It is the logic of “convergent validity”—when independent methods and perspectives all point to the same inescapable conclusion, we are most likely staring at the truth in full view.

So, “what we know” is critical to finding solutions to knotty problems such as the dilemma described above. 2000 years ago, Plato presciently wrote, “One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors.” (Presumably, he meant those with the darkness of dangerous ignorance.) Plato argued for something similar to a Democratic Republic, where the leaders are “philosopher kings.” He imagined these to be individuals more educated and also more principled than the common people. (In modern American values, this concept would fit as long as the philosopher “kings” were ultimately held to a reasonable account by the electorate, not the Electoral College which can be “gamed” more easily). We infer that these enlightened leaders would be intelligent, curious, endowed with the propensities of beneficent judgment, and kindness in leading their societies to safe and prosperous existence.

We are undergoing a massive sociological experience calling for execution around two critical elements of a society: physical health and economic health. We are currently living within a context where ethical decisions are hard to make and where authoritarian traps are seductive and abundant. And, of course, fraud is also finding this context a fertile field in which to flourish. This is where my partner and colleague, Daven Morrison, offers us his most compelling and relevant insights.

(Editor’s Note: See the next blog posting for Dr. Morrison’s refreshing perspectives and insights.)

BEHAVIORAL FORENSICS GROUP^TM LLC 

The Behavioral Forensics Group^TM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

(READY-FIRE-AIM, PERHAPS?)

(By Dr. Joseph W. Koletar)  Pitch Drop, located at the University of Queensland, Australia, is perhaps the world’s longest-running, continuous scientific experiment. Started close to a century ago, it seeks to document whether tar pitch is liquid or solid. A lump of it was placed in a container at room temperature to see if it would drip into a beaker below. Professor John Mainstone watched carefully but missed the drops that took place in 1962 and 1970. The 1979 drop took place over a weekend, when he was not in the lab. He missed 1988 when he stepped out of the lab to fix a cup of tea. A later drop was missed when a camera failed. The good Professor died a few months before the latest drop in 2014, but the work continues. (1)

While certitude is the paramount objective, science sometimes gives up its secrets very slowly. Which brings us to the present, when COVID-19 came knocking on the world’s door.

It is the near-constant topic of news coverage, displacing the old stand-bys of flood, fire, famine, fame, fraud, and fighting. The virus seems to spread easily, strike quickly, and claim lives. Entire industries have essentially been shut down, millions thrown out of work, social and family patterns disrupted, and hoarding behavior induced. Financial markets are somewhere between panic and free-fall, bouncing up or down with the latest news.

Governments big and small are recommending or requiring self-isolation, some travel is restricted, and home-schooling is the new norm. Medical personnel and faculties are over-whelmed, and the private sector is being asked to respond with medical equipment and research. Military personnel and equipment are being utilized to ease the burden on civilian infrastructure. The Federal government is spending trillions of dollars through various channels to support individuals and businesses.

The over-riding tone of the popular sentiment is “Do Something!” “People are dying!” “My family and I are at risk!” “What’s happening?” “What should we do?” “What help can we expect?”

All fine, logical, and reasonable questions. Kind and unexpected acts of compassion are increasing: young people are offering to shop for senior citizens; “flash crowds” are cheering medical workers. It is heartening to see.

The news media is trying its best to keep the public informed, but its hyper-competitive nature drives it to seek exactitude in a time of confusion. There are moments of “What did you know, and when did you know it?” The evil triplets – Woulda, Coulda, Shoulda – lurk in the wings, eager to take the stage.

Elected officials try to play loving parent in issuing stern pronouncements, mixed with “promises” that it will all be better in due course. The evil among us continue to be evil, seeking to profit from both compassion and confusion, while the medical professionals try to explain the nature and limits of models to hungry and relentless media hordes.

That point is particularly important, since in times of crisis human nature seems to seek certitude, and nothing is more “certain” than a number. Authors Bennie Pieser and Andrew Montford of the Global Warming Policy Forum addressed this issue in a recent edition of The Wall Street Journal. With specific reference to COVID-19 they noted the government of the United Kingdom early on took significant financial and public policy measures based upon the “predictions” of a model that was thirteen years old and contained “thousands” of lines of undocumented Code. Even the people who developed the model are hard-pressed to think of ways to now update it. (2)

What are we to do? Realize that most people are well-intentional and doing their best. Understand that those in power are trying to speed up promising palliative measures. Appreciate the predictive limits of models. Use common sense regarding crowds and hand-washing. And now, with the CDC’s exhortation to wear face masks, even if home-made.

We cannot wait for the next drop of pitch to fall but we would be well advised to give a process only several months old enough time to reveal its nature and dimensions. Every day we seem to learn a bit more, and can hopefully improve our response as we go. This is a global issue. Most historians of science have concluded that progress tends to be the result of a series of modest steps, rather than one giant leap.

We would appreciate your thoughts and comments.

(1) See “Don’t Miss It,” by Kelly Matthews, Phi Kappa Phi FORUM, Spring, 2020.
(2) “Coronavirus Lessons From The Asteroid That Didn’t Hit Earth,” by Bennie Peiser and Andrew Montford, Wall Street Journal, 4/2/20, p, A-17.

BEHAVIORAL FORENSICS GROUP^TM LLC 

The Behavioral Forensics Group^TM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com

(By Dr. Joseph W. Koletar, CFE,
Founding Partner, Behavioral Forensics Group, LLC)

The use of metrics in anti-fraud activities is as old as the profession itself, yet fraud persists in forms great and small. It is an endeavor which will never achieve a 100 percent success rate any more than law enforcement will prevent most of the population from speeding.

But, as with law enforcement, the pursuit of improvement is a never-ending requirement. It may be that a degree of improvement can be gained by studying the techniques used by a highly-successful private-equity fund.

An article in the Wall Street Journal of July 10, 2018 (p. 1) may be instructive:

“Secret Formula, Intelligence Tests Fuel Buyout Firm.”
(Robert Smith’s method for revamping software companies relies on 110 directives)

The article recounts Mr. Smith’s secrets are, indeed, secret – they are stored on a well-protected company server and are used to evaluate and/or modify the processes of an acquired company. Such companies must have CFS (critical factors for success) and tests to evaluate existing and new employees for various mental and psychological traits. Existing employees fear such processes but new employees embrace them, since they may be identified as HPLEs (high performing entry-level.)

Mr. Smith is quoted as saying “Software companies taste like chicken…They’re selling different products but 80% of what they do is pretty much the same.” In short, Mr. Smith is looking at the “guts” of a company to see how well they perform. It must be working: The article indicates that four of his funds have returned annualized returns of between 11.7 and 29.2 percent. The article recounts that Vista (the name of his company) has done over 300 deals and informs investors it has never lost money on any of them. (Note – the article is quite long and there are those in the financial services industry who disagree with Mr. Smith’s approach.)

Now the key question – what does this have to do with fraud?

The very nature of a forensic inquiry into an organization – be it public, private, governmental, or Not-For-Profit – focuses on the “guts:” the control systems, the management style, reporting relationships, compensation plans, etc. In short, what keeps the organization moving. Fraud occurs when one or more of these elements becomes distorted. Examples:

• A focus on profit or compensation promotes over-rides of controls.

• Control systems have eroded and those who work in them are often seen as obstacles to success.

• Star performers are rarely monitored as closely as they should be.

• Psychological testing at any level, to include the “C” suite, is practically unheard of.

• Accounting standards allow aberrations to be reported as “not material” in financial reports.

• The entire industry sector operates on a “high risk” basis.

• Internal audit staffs are over-worked, under-paid, and often seen as a necessary evil. They must also service an annual “Audit Plan” which allows them little time to explore anomalies in record systems, and most have little or no training in forensic inquiries.

Many of these fraud-friendly issues can be disclosed with the proper use of metrics in fraud investigations.

If compliance monitoring (fraud deterrence) is to improve perhaps we should consider the “Robert Smith” approach.

© 2018
Joseph W. Koletar

BEHAVIORAL FORENSICS GROUP^TM LLC

The Behavioral Forensics Group^TM LLC is a team of professionals with vast experience in detecting fraud, understanding why it occurs, and in recommending steps to mitigate fraud incidence within the corporate workplace, particularly within higher-level (and therefore more costly to the enterprise) executives.  Three members are co-authors of The A.B.C.s of Behavioral Forensics (Wiley), a seminal work in the topic. The fields of investigation, organizational psychiatry, accounting and behavioral forensics, and law enforcement are represented within the Behavioral Forensics Group^TM LLC.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, B4G^TM is a premier, pioneering practice in this field.

We are blogging at: http://www.bringingfreudtofraud.com