How can we distinguish them?
Sniffing out the Bad Apples, Bushels and Crops
From the first conversations of a team dedicated to understanding the human side of fraud we collectively came to realize that there were multiple problems in the conceptualization of fraud that needed to be tackled. This team was first assembled at the Institute of Fraud Prevention of West Virginia by Dr. Sridhar Ramamoorti. Nearly simultaneously, Daven Morrison assembled his colleague Sridhar and the Group for the Advancement of Psychiatry (GAP): a group of top organizational and occupational psychiatrists. In addition to welcoming Dr. Ramamoorti’s ideas for exploration, Bethany McLean (most interesting to us as the author of “Is Enron Overpriced?” – an article that brought down two well known organizations) was invited as well. It was with this group of psychiatrists, a business journalist, and a Governance Partner of an Accounting firm in White Plaines where we recognized how “deaf” the ears of senior leaders are to considering fraud – despite the odds that it could happen again.
One of the most pernicious aspects of fraud is how it can creep up on people. They buy into a corporate culture, and stop asking the bigger questions of right and wrong.
Author of: Shaky Ground,The Devils are all Here Now, and The Smartest Guys in the Room
Of the factors leading to missing larger organizational dynamics that reinforce fraud, perhaps most alarmingly is the actual legal definition of fraud that limits it to “one person”. The law profession itself thus limits how fraud is framed. Clearly the Enron case included multiple guilty parties, and there are others exposed in the headlines everyday: from Madoff to FIFA, to Volkswagen and salmonella poisoned peanut butter – entire systems of people participate in fraud. It moves from a bad apple to a rotten bushel to a sour crop in our model. In fact, as described by Vic Hartman a new member of our team, when it includes the regulators and the quality inspectors (as it did with the S&P scandal) it becomes a bigger stinky mess: a “Rigged Farmer’s Market”.
So, in the media we have fairly clear evidence of a larger systemic problem beyond the “rogue greedy trader” that characterizes many public relations messaging of larger organizations caught up in fraud and the resulting embarrassment, but, is there evidence beyond this? What if the criminals themselves were to talk? Would they provide insight?
Pamela Murphy Ph.D. actually did interview criminals and her research does help provide understanding to these larger organizational dynamics.
Using lessons learned from sociology and criminology integrated with the fact that many major frauds are too complex to be executed by a single person, Dr. Murphy’s hypothesis is recruiting to a larger group must be occurring. In addition she wanted to test and see if the organizational culture would reflect how this happens. She found three types of interpersonal bonds (in decreasing order of incidence):
- Self-serving bonds – “we will do this for our own needs”
- Organizational-Serving bonds – “we will do this to make organizational goals”
- Relationship first bonds – “we will do this because we care more about each other than the rules or the organizational needs = Do this because you love me”.
In parallel to this work, the prisoners were surveyed with an instrument designed to assess the ethical focus of the culture. Designed to tease out whether the culture was ethical or “instrumental” (complete the task by any means possible, disregarding ethics) her team found 39% noted an instrument culture. It may be that this number is actually higher assuming the criminals may already have a distorted view of what is ethical.
The notion of the lone gunman is safer for organizations.
Pamela Murphy, PhD; CPA CFE
What are the implications?
The research of Dr. Murphy and her team provides a light into mechanisms for the larger group dynamics that the actual fraud cases implicate are occurring. We think that the prisoners’ motivations fit into the eight motivations we describe in our book, A.B.C.s of Behavioral Forensics . In the research on motivations around these reversals, there is always one superior motivation. So we suspect the interviews are exposing what are the primary motivations. These basic motivations constantly reverse through out our lives between eight options. These options are each at the end of one binary choice. Specifically, Apter’s theory simplifies human motivation to four axes:
1) Importance of Rules: do the rules matter enough to follow, or do I rebel?
2) Others’ Fit/Purpose: Is this for my mastery or do I accept help from others
3) What Outcomes: Is this about the journey (and play) or are we getting a task done?
4) Who Benefits: Will this benefit me or others?
In work with fraud investigators (in internal risk departments of organizations as well as law enforcement) these factors of motivation are well received. The investigators have to interview people and these interviews can be awkward, lacking a place to start. Thus, the interviewers appreciate the four axes as a way to organize motivations and get into the mind of the fraudster. Bottom line: the model provides new trails to follow to help understand motivations beyond “greed” of the person who commits fraud.
And to the research of Dr. Murphy and her team, it is clear it also helps us understand those who commit fraud as part of a colluding group.
Join us for more insights into behavioral forensics (behind fraud and similar white collar crimes) from the authors of A.B.C.s of Behavioral Forensics (Wiley, 2013): Sri Ramamoorti, Ph. D., Daven Morrison, M.D., and Joe Koletar, D.P.A., along with Vic Hartman, J.D. These distinguished experts come from the disciplines of psychology, medicine, accounting, law, and law enforcement to explain and prevent fraud. Because we are inspired to bring to light and address the fraud problems in today’s headlines, we encourage our readers to come back and revisit us regularly at BringingFreudtoFraud.com.
 Black’s Law dictionary;