(Can You Really Trust “Nice” People?)

(By Dr. Joseph W. Koletar and Daven Morrison, MD) Since the beginning of time, “shrink” has been a problem for the retail industry. The term refers to goods lost to shoplifting and internal theft. It is generally estimated at about 4 % of potential sales, and presents a significant problem for an industry that operates with a profit margin of about 1.5 %.
Things seem to be getting worse, according to recent statistics. The industry, like many other areas of commerce, service, and manufacturing, is increasingly moving to the increased use of robots. In retail, this recently takes the form of “self-checkout” kiosks. This has faded, only to be replaced by experiments in “human-less” stores in urban areas.
The industry now estimates about 20% of people cheat by not scanning every item in their cart or basket. At the moment, the industry faces a perplexing situation. Placing security tags on each item is impractical. Posted signs about active video surveillance are less-than-fully-welcoming. Having employees monitor behavior defeats the very purpose of self-checkout, so many stores have gone to a very gentle form of “interrogation” on a “spot” basis. To wit:
“Excuse me, you seemed to be having some trouble with our machine. Can I show you how it works?”
The question is gentle, the response is amazing:
“Oh, I know how it works. I just wanted to see if I could beat it.”

They then pay for the unscanned items, and are on their way. Interestingly, these are not poverty-stricken people. They are fully capable of paying for the items, and they tend to take low-cost items. They seem to treat the whole issue as a “friendly” game of “Gotcha!”
One is left to ponder possible remedies. Perhaps, “Unscanned items may negatively affect the performance rating of the Self-Checkout Manager?”
It is a work in progress at this stage, but the underlying issue is really the psychology involved. We rightfully castigate the Bernie Madoffs of the world, but Bob Smith and Sue Jones are “regular” people just like us. An examination of the work of noted British psychologist Micheal Apter and others may be in order. Such issues are what the Behavioral Forensics GroupLLC specializes in – Motivation, the root of all good and all evil.

Those from the south may be familiar with the common phrase: “bless your heart”. Those who study people know how that phrase might not always be as kind as it may seem on the surface. In fact, it can be used in cruel ways intended to look kind, when no kindness is present. We wonder “why?”

Michael Apter, in his new text, Zig Zag: Reversal and Paradox in Human Personality, is confident and aggressive in asking the reader to ponder how “nice guys” aren’t so nice. Outlining the cases of a serial killer, he moves on to New York Attorney General, then Governor and now ex-con Eliot Spitzer to explore (as we did in A.B.C.’s of Behavioral Forensics) the hard-to-comprehend bad actions of “upright” citizens. He effectively outlines how the average person is just as capable as the people who make the headlines to switch between someone who conforms to the law to one who breaks it.
As the retail industry shows, and what we have said for decades, fraud is not a crime of “bad people” they are soccer moms and hockey dads just like you and me. What is the motivation for the guy who says: “I just want to beat the machine?” See OUR text: and try Chapter 6.  You will find the answer there.

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

(Note: On June 20, two of our bloggers will be presenting to the 2018 National Consultants’ Conference of the National Association of Certified Valuators and Analysts (NACVA) in Las Vegas. Drs. Daven Morrison and Sridhar Ramamoorti’s presentation is titled, Beliefs, Behaviors, and Fraud in Valuations. It is based on the thoughts presented below.)

(By Sri Ramamoorti and Daven Morrison)

“Beliefs are the basis for most of our behavior, and it’s impossible to mask them. If you totally believe in what you sell, that belief will come through loud and clear with no effort on your part. The opposite is also true.”–Anthony Parinello in Secrets of VITO (Very Important Top Officer): Think and Sell Like a CEO, 2006, Entrepreneur Media, Inc.

“It is useless to attempt to reason a man out of a thing he was never reasoned into.”
― Jonathan Swift

In an earlier blog, one of our fellow bloggers made a persuasive case for teaching critical thinking. Now, critical thinking must be carefully nurtured and cultivated. Because, as The Critical Thinking Community laments, “…much of our thinking, left to itself, is biased, distorted, partial, uninformed, or downright prejudiced…[hence] critical thinking [must be] self-directed, self-disciplined, self-monitored, and self-corrective thinking.” (http://www.criticalthinking.org/pages/our-concept-of-critical-thinking/411).

One of the most enduring and relevant maxims for fraud examiners is: “If it is too good to be true, it probably is.” Any sleuthing tendency demands a high degree of professional skepticism. In other words, you must have the ability to challenge your beliefs, no matter if everyone else appears persuaded, and it is part of “conventional wisdom.”

We have emphasized the importance of judgment in our shared writings and the need for good judgment is now more paramount than ever. So our plan is straightforward. Using Parinello’s approach (quoted in the epigraph), we will try to provide a way to query your most cherished beliefs, question the obvious, delve deeper, remove bias, and thus help you come closer to learning the objective facts.

However, we must also note a caveat right from inception. One of the most compelling ideas being explored throughout boardrooms, the executive suite, and in business schools is the concept of fast and slow thinking made fashionable by Nobel Laureate Daniel Kahneman (in Thinking Fast and Slow, NY: Farrar, Strauss and Giroux, 2011). In recent writings he has emphatically noted the single most important lesson from his lifetime spent exploring the limits of bad decisions is “over confidence.” Clearly, Parinello’s frame of mind places anyone who follows his overly simplistic recommendation at significant risk of over confidence—so, you must exercise care and caution as well.
Let’s start with a story.
“The table was set for a lovely Thanksgiving dinner. Just before the honey-cured ham went into the oven, Doris cut about one inch off each side and then placed the ham squarely into the pan. Why, her husband asked, did she cut the ends off the ham?
“That’s the way my mother taught me,” she answered. “I’ve been doing it this way for years—it must have something to do with preserving the flavor.”
Sure enough, the ham came out sweet and moist. After dinner, Doris’s husband couldn’t help asking his mother-in-law how cutting off an inch of ham on each side helped to retain flavor in the meat.
“That’s the way my mother taught me,” came the response. “I don’t know why it makes the ham taste better, but it must do something.”
There was a strange pause. Then Grandma spoke up in a soft voice. “Oh honey—I only cut the edge of the ham off because we never had a pot big enough to hold a good-sized ham.” (p. 188)

Family traditions and social conventions exert a powerful influence on belief-formation processes. And because many such beliefs get developed during our childhood and formative years, they tend to be left unquestioned and unexamined. These same dynamics exist in organizations as well. Arthur Andersen famously double-checked the work of calculators with adding machines and other familiar tools because of the gnawing skepticism that calculators would really work. In the course of fraud and accounting forensic investigations, accepting whatever is told at face value and remaining a passive listener can be suicidal for the forensic operator. Instead you should take the attitude of “I wonder what the assumptions are behind your facts.”

Confirmation bias has proven to be one of the most insidious and pernicious but nevertheless durable realities of human bias in judgment and decision making by decades of psychology research. More broadly, motivated reasoning refers to emotion-biased decision-making employing an “inferred justification strategy” which is used to mitigate cognitive dissonance (i.e., the incongruence between beliefs and actions, something has to give, and our concern is when truth is the casualty). When people form and cling to false beliefs relying on selective perception and despite overwhelming contradictory evidence, they are using “motivated reasoning” to justify their beliefs. For most of us, it is difficult not to engage in motivated reasoning and rather easy to fall prey to confirmation bias—even engaging in “willful blindness.” (Heffernan, “Willful Blindness: Why We Ignore the Obvious At Our Peril,” 2011, NY: Walker Publishing). When the hypotheses are retained, despite data proving the contrary, you are no longer practicing the art of science, but rather drifting down the path that leads to prejudice and dogma.
When reviewing fraud allegations, nothing has been proven yet, all bets are off. Thus, a skeptical attitude towards the asserted, but so-called “facts” is critically important. Following Benjamin Franklin’s “prudential algebra” methodology (September 19, 1772) here is a way to examine your beliefs.
If you want to change any belief you have, says Parinello (2006, p. 190-191), ask yourself the following questions paying heed to your intuition (these questions have been adapted and modified for a forensic accounting context, relying on our experience):
1. SOURCE CREDIBILITY: Where did I get this belief? Was it from direct, personal/professional experience or indirect, through hearsay?
2. SOURCE CONTEXT AND TIMING: How long ago did I adopt this belief? Was it within the past year? Earlier cases investigated or other experience? Or perhaps from your childhood years?
3. PLAYING CONTRARIAN: Have I ever compromised this belief? If so, how many times? In which cases? How long ago? Why? (Note: the more specific and accurate you can be about the “why” in this question, the better your chance will be of changing your belief)
4. PROS: What have been the consequences, if any, of compromising this belief? Here again, be as specific as possible. Did it help you better understand the case fact pattern?
5. CONS: What have been the consequences, if any, of maintaining this belief? Does having this belief limit you in any way? Does it force you down a certain path? Selective perception?
6. USING PRUDENTIAL ALGEBRA: On balance, regarding the case at hand, is it better or worse for you to maintain or jettison your core belief regarding one or more assertions that appear questionable in some way? Your intuition, gut instinct or sixth sense is urging you to revisit your spontaneous reaction to accept the “facts.” Just do it!
To dive deeper into this method, wonder to yourself about the person who is acquiring and reporting the financial records. Consider also his or her team and others (consultants or external accountants) who may have access to the information. Are there incentives for them to engage in self-deception, or to become biased? Numbers people can be at times quite rigid and unyielding, and even proud of their rigidity. Yet, too much rigor can produce rigor mortis.

Engaging in self-reflection may take time and effort initially, but soon becomes part of your natural, skeptical nature. As we have maintained in our ABC book, computers and Excel spread sheets do not generate fraudulent financial reports, people do. Your skepticism and ability to thoughtfully reflect on the people in front of you will serve your clients and your reputation well. Interestingly, when others become aware of your skeptical orientation, they will be careful not to present patently false and laughably incorrect information for your consideration. In other words, your approach “disciplines” the conversation and does not allow truth to become a casualty. In addition, be disciplined to not become infatuated with your reputation. Gather around you a “kitchen cabinet of people who will tell you when you are wrong and where your biases are.” As the Irish say, “When everyone around you says you’re drunk, it is best to shut up and sit down!” Blindspots do not declare themselves. You, too, must be vigilant over time to new beliefs that must be questioned.

It is useful to heed Isaac Asimov’s advice: “Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won’t come in.”

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 of Behavioral Forensics GroupTMLLC

MONEY Magazine of March 2018 carries the following article on page 22:

The Insane Amount Millionaires Say They Need To Be Happy.
(Research shows the more you have, the more you think you need)

The article recounts that researchers from the Harvard Business School (HBS) asked over 4,000 millionaires their feelings of happiness after amassing what most would consider a significant amount of money. The results were interesting, given that most people believe there is a direct correlation between money and happiness. Not so, indicated researcher Grant Donnelly.

The HBS team chose a mid-point: above or below $8M, a sizeable amount in the view of most people. Interestingly, most millionaires in that range indicated they would require growing their wealth “immensely” in order to achieve “happiness.”

The article reports that the current study follows a similar study conducted in 2010. That study found that money does tend to increase happiness, but only to a point – about $75,000 in “new” compensation. Beyond that amount, more money seems to have little impact. What Donnelly and fellow team members tried to do was to conduct a similar study of what were referred to as the “ultra-wealthy.” They focused on two variables: does great wealth bring happiness, and does the source of the wealth matter?

It seems it does – those who believed they had “earned” their money reported higher degrees of happiness than those who “inherited” it. Most interesting of all was the fact that:

• Unlike the earlier 2010 study, millionaires now reported that “the more the better;”
• 27% stated they would need an increase of 1,000% to achieve perfect happiness;
• 25% stated they would need 500% more;
• Only 13% stated they would be happy where they were financially.

Rising expectations? An example of what a researcher named “Festinger” described decades ago as the “relative view” of money. The old story of the West Texas oil man who once told a young associate: “Son, the money ain’t important. It’s just how we keep score.” And in Illinois, it would seem to be a stimulant for political activity, where the gubernatorial election is being billed as “The Battle of the Billionaires.”

B4G has been exploring this issue for over a decade. We have become confident that the findings set forth above ring true in our partners’ collective 100+ years of theoretical and practical experience. However, they ring true at ALL levels of an organization, not just the very top. This finding is supported by well over a decade’s worth of analysis by the Association of Certified Fraud Examiners (ACFE). ACFE is the largest, and most well-respected, professional anti-fraud organization in the world. (More information and study results can be found, free of charge, at ACFE.org)

As a hypothetical example, assume a low-level employee steals $10,000; were that employee at a somewhat higher level, the amount would be $40,000; a still higher level, $160,000, and a still higher level, $640,000. There is a geometric progression at work. This makes perfect sense, since the higher a position you hold, the larger the amount of money under your control, and the degree of oversight lessens.

Accordingly, we can assume fraud is an equal employment opportunity motivated solely by greed. Correct? No. What B4G has done is break down what is widely accepted as the sole motivator (greed) into new elements which are far more persuasive as to the range of human emotions involved.

To learn more about our theories, and our services please visit our website www.behavioralforensicsgroup.com

Joseph W. Koletar ©
2018

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 Principal – Behavioral Forensics Group^TM, LLC)

The September, 2017 edition of Corporate Counsel magazine reported the results of a survey done by Deloitte Consulting of corporate General Counsel executives:

“Survey: GCS Fear Workers Will Let Lapses Slide” (p.10)

The survey was released by Deloitte Consulting’s Don Fancher, a Principal in Risk and Advisory Services, and also U.S. Forensic Leader.

The survey is instructive, in that there appears to be a “disconnect” between what corporations want, and are mandated, to do with regard to compliance, and what actually happens.

The survey is based on 930 responses from C-Suite Executives and other Executives, and reflects a concern that employees still struggle with issues of ethics and compliance. The root causes, per the survey, are the apparent inconsistency of “…clear, concise, and frequent ethics communication and training…” These shortcomings seem to be common at all levels of the reporting corporations.

Analysis of the survey offers, however, an intriguing possibility. Fancher’s report indicates 52.4 percent of responding executives believe global corporate ethical behavior has improved since the enactment of the Sarbanes-Oxley Act in 2002. At the same time, the report  indicates that only 41.3 percent of respondents believe their companies’ global ethics cultures are “strong.”

The survey concludes that shortfalls in the ethical arena may be due to:

• “…lack of incentives and repercussions surrounding ethical and unethical behavior….”
• “…varied ethical postures of third parties…”
• And “….differing ethical standards for various employee groups.”

The Behavioral Forensics Group^TM takes no issue with the survey’s findings, but suggests yet another dimension to the ethical conundrum – the psychology of the parties involved. Our work and experience informs us that the three primary actors in any ethical scenario are: the initiator, the victim and the witnesses/enablers. Each has distinct psychological profiles that create and, indeed foster, unethical acts. While much speculation, and some research, has been done on the initiator (e.g. Madoff), almost none has been done on the victim(s) and witnesses/enablers.

Starting in 2010 through the present such issues have been the sole focus of our consulting practice and the impetus for our 2013 book, “The ABC’s of Behavioral Forensics.”

The author, who served as a Director in the Fraud and Forensic Practice of Deloitte&Touche, LLP from 1994 to 1999, may be reached at 910-612-1323, or jwk357@aol.com.

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

Dr. Sridhar Ramamoorti, ACA, CPA/CITP/CFF/CGMA, CIA, CFE, CFSA, CGAP, CGFM, CRMA, CRP, MAFF, Founding and Managing Principal of Behavioral Forensics GroupTMLLC, has been invited to speak in June at the annual Consultants Conference of the National Association of Certified Valuators and Analysts (NACVA), in Las Vegas, Nevada. Dr. Ramamoorti’s presentation is titled, “Beliefs, Behaviors, and Fraud in Valuations.” Dr. Ramamoorti will be joined by Board-certified psychiatrist, Daven Morrison, MD, as a co-presenter. Dr. Ramamoorti and Dr. Morrison have co-authored research articles and have collaborated on the prize-winning book, A.B.C.’s of Behavioral Forensics, that has been presented to the FBI Academy.

(It is in rewards and compensation systems)

(By Dr. Joseph W. Koletar, CFE, Founding Principal of Behavioral Forensics Group^TMLLC)

(NOTE: Our previous posting briefly suggests that rewards structures within companies sometimes encourage fraud, especially when business is going bad. This posting by Dr. Koletar picks up where that posting ended by more deeply defining the role of rewards in white collar crime.)

Executives are well-educated, experienced, highly-compensated people. Why, then, do they and their organizations fail, sometimes in spectacular manners (Enron, et al.)?The answer is so simple, it seems to defy logic.

The issue is in the reward systems and policies, including compensation (at higher levels, Compensation Committees).

From line, to intermediate, to executive management, everyone has a report card. There is an obvious incentive to get good “grades.” These are usually expressed as increased sales, improved profitability, expansion, acquisitions, stock market valuations, etc. Simply put, there is a powerful incentive to seek, find, and report good news.

Data are abundant – from internal monitoring systems, internal and external audit, operations and sales reports, etc. Yet, those subject to compensation/performance requirements sometimes move forward with reckless abandon, “seeing” only those things which improve their performance numbers and suggest “continuous improvement.” The latter metric is a lofty, but often dangerous goal. Why? Because it defies logic. Were it to apply to recreational sports we would all have professional contracts. Does this mean failure is “OK?” No, but occasional failure is realistic.

The never-ending quest (mandate?) for more, quicker, and better often leads to inflation, intimidation, and even outright fraud. (The best hitter in the history of baseball – Ted Williams – struck out, grounded out, or flied out 60 percent of the time.) Yet, we and the superiors who determine our status and compensation seek relentlessly for only good news. It is a widely-accepted axiom of management theory and practice that bad news tends to filter out as it approaches the top. (Messengers delivering “bad news” are rarely rewarded, and often are shunted to the nether regions.) Such news goes unreported, shaded, softened, “explained,” or removed by “slight adjustments.” When these actions require the assistance of others they can quickly become a modus vivendi within even the stoutest organization. Bad leads to worse, and worse may lead to system collapse. (Each “little white lie” must become a larger “white lie” to allow for past misdeeds while “adjusting” for current shortcomings.)

One would think, given the long and somewhat ponderous litany of corporate collapses, that organizations would have taken steps to address such risks, but failures persist. Even the mandates of Sarbanes-Oxley and Dodd-Frank legislation seem to not have been as effective as intended. Perfection is impossible, but the pernicious frequency of misdeeds marches on.

There are people and organizations devoted to the discovery of misdeeds – auditors, regulators, compliance officers, and forensic professionals; but still the misdeeds persist. The answer is easy. It lies in compensation plans. One is hard-pressed to find a compensation plan, particularly at the higher organizational levels, that contains a critical element relating to the discouragement of fraud. Until such issues are addressed, the title of an old song pertains:

“The beat goes on.”

Joseph W. Koletar

© 2018

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 Jack Bigelow) With the passing of the holiday season, the nation’s brick-and-mortar retail companies are deep in the winter of their discontent. The discontent stems from a business model that appears to be in peril from on-line competitors that are blitzing the retail market, riding the crest of a sea change in consumer buying habits.
More and more, we see references to the coming “Retail Apocalypse,” a term signaling the dire dimensions of this trend. The traditional retail business model is built on the belief that consumers like tangible contact with the goods they may buy—to touch them, feel them, gauge their buy-worthiness, and drive home with them. That model is under attack from the convenience of looking at prospective purchases on a screen, then ordering them and paying from the laptop or smartphone, with delivery within a day or two at the door.

What does all this have to do with fraud?

An article published last November (MBA@Dayton University of Dayton’s online one year MBA program) is titled, Managing Risk During the Retail Apocalypse, and it refers to an article co-authored by our blogger, Dr. Sridhar Ramamoorti and Jim Wanserski, a management consultant based in Atlanta. In that article, they suggest that two risk factors are at play in any potential crisis situation:

• The velocity of risk (the speed at which a risk factor becomes a crisis);
• The agility of the business in making a quick response.

When the business is highly agile in responding to change presenting risk, its likelihood of surviving the crisis is higher.
But that response must first be stimulated by recognition that a potential crisis is looming.

I’d like to suggest that the agility of a business in responding to business risk is highly influenced by its ability to see the start of a crisis at its very germination. That recognition is usually triggered by warning trends in business data—-sales volume, traffic volume, price sensitivity, etc. And data collection, processing, and distribution are fertile fields for fraud, especially when reward systems (including keeping one’s job) are data-based. Cases abound where this has happened, including Enron, Wells Fargo, and HealthSouth.

The MBA@Dayton article notes that retailers were in consensus about their biggest risk factors in 2017: Security breaches (another risk factor of fraud), government regulation, and general economic conditions. We suggest that in 2018, there will also be powerful internal incentives to commit fraud at all levels in the organization in the mistaken belief that good numbers protect positions and encourage advancement. This risk is always there, but current trends in the retail industry exacerbate it. What happens when the numbers are artificially “good” in what they portray, when the authentic numbers would be red flags impossible to ignore? Response to the growing crisis is delayed by management’s blindness to the threatening reality.

For this reason, long-term survival of the business can be at stake in an organization’s efforts to mitigate the opportunities, incentives, and rationalizations behind fraud. And yet, management often fails to recognize the magnitude of risk presented by fraud.
“Clean” data can alert businesses to perilous trends in high-velocity risk, allowing them to employ adaptive business strategies in time to survive the looming crises. And employ fraud mitigation efforts* to reduce the risk of unclean data!

*(education regarding corporate culture, visible emphasis on ethics, programs emphasizing the value of interpersonal competence and reputation, active and well-managed hot lines, and GAAP-endorsed efforts to reduce opportunities for fraud, to name a few)

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

(Blog Curator’s Note: With this posting, we end a lengthy hiatus in postings on this blog, for reasons cited in the previous posting. It is appropriate to return to some basic thinking about fraud as we resume. Dr. Sridhar Ramamoorti is founder of this blog, and the posting below is based on his definition of fraud in the SAGE Encyclopedia of Criminal Psychology.)

(By Sridhar Ramamoorti) Fraud is a violation of trust, a human act to deceive another so that the victim suffers a loss and the perpetrator makes an unlawful gain. Black’s Law Dictionary is somewhat more profuse in its definition: “All multifarious means which human ingenuity can devise, and which are resorted to by one individual to get an advantage over another by false suggestions or suppression of the truth. It includes all surprise, trick, cunning, or dissembling, and any unfair way in which another is cheated.” (In both definitions above, the word, “human” is stressed for reasons described below.)
Fraud is a form of theft, but not by force. The victim, in most instances, willingly gives away money or something else of value because of lies and misrepresentation and betrayal of trust.
Fraud is also a form of deception. Deception is inherent in nature. Many living creatures survive through deception (an example: the viceroy butterfly looks like the bitter and mildly poisonous monarch butterfly). Within the human world, deception may be benevolent (think of potentially life-saving camouflage used by infantry troops). And it can also be malevolent, where deception is used for gaining money, power, prestige, or some other “advantage” (to use Black’s language) without compensating in some way those whose loss becomes the fraudster’s gain.
Both definitions of fraud include some common elements:
• It is committed by human beings.
• It is a betrayal of the trust that humans grant each other.
• It involves either false representations or suppression of true representations between humans.
• The person committing fraud gains an advantage over the victim in pursuit of self-interest.
Those committing fraud has been conjectured in the literature being of two types:
• Accidental or situational fraudsters, who find themselves with opportunity to commit fraud and then act on that opportunity.
• Predators that seek opportunity to commit fraud and then act on that intent.
In all fraud case, as we point out in our book, A.B.C.’s of Behavioral Forensics (Wiley, 2013), three conditions are at play:
The opportunity for trust violation, the motivation to commit the fraudulent act, and rationalization within the fraudster’s mind justifying the fraudulent behavior as appropriate to the situation. (This blog centers on the latter two factors as keys to the prevention and investigation of fraud incidents.)
Thus far, we’ve looked at fraud as white collar crime that is committed by an individual. But cases abound where fraud extends well beyond the actions of one person. Our book proposes a taxonomy (way of organizing a body of knowledge) of fraud in multiple levels:
• The Bad Apple (one individual);
• The Bad Bushel (when a group of people collude in the fraud);
• The Bad Crop (when a whole organization perpetrates and perpetuates fraud).
• And one of our bringingfreudtofraud bloggers, Victor E. Hartman, has proposed an even larger compilation of people committing fraud, which we may describe as a Rigged Market! This is where multiple organizations and regulators fail to protect the public and functionally contribute to the betrayal of public trust, such as was the case with the Wall Street financial crisis of 2007-2009.
Most fraud prevention and investigation efforts to date have centered on how fraud occurs. This blog and its sponsoring group, The Behavioral Forensics GroupTMLLC, is targeting the why people commit fraud. These motivations are deeper than the usual surface assumption of greed. A highly salient ingredient of the definitions of fraud with which we started (and stressed with italics and bold print) is the mention of people. Fraud is not fraud unless a person is committing it. The more we understand why people commit fraud, the more effective we can be in preventing fraud and in investigating fraud cases. We cannot be content in asking the “how” question regarding the instruments of fraud; we need to be asking the “why” question—what were the motivations causing otherwise good people to do bad things?
Fraud is also a crime where often the victim unwittingly colludes with the fraudster. Fraudsters have their psychology; so do victims, giving themselves permission to enter into a fraudulent transaction with their own sets of justifications.
The psychology of fraud is a new and emerging field of study and investigation, ripe with long-term potential for helping to mitigate the incidence of fraud through a better understanding of why it is committed. Actions based on this new knowledge targeted to motivations and rationalizations can be coupled with actions to reduce the opportunity to commit fraud in a broad spectrum approach to the control of 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.

To our bringingfreudtofraud followers:
We are back! Our blog site has been dormant during construction of (and eventual integration with) our new web site, behavioralforensicsgroup.com.  But we are now back and you will soon see fresh new postings on all matters regarding why people commit fraud.
The Curator