PRINCIPLE AND PROFIT

(By Dr. Joseph W. Koletar) In matters of fraud we tend to think most often of the motives of the perpetrator. Thanks to the work of our colleague, Dr. Daven Morrison, we now also begin to explore the psychology of the victim(s.) But, one key player in the “script” of a fraud has been little addressed:

The psychology of the witness.

Few frauds are so clever that they go unnoticed, especially by those closest to them, such as subordinates. But few speak out for fear of retribution, (loss of position, scorn from friends and colleagues, real or potential profit, etc.) Indeed, early studies have shown the “whistle-blowers” often suffer greatly for their actions (substance abuse, divorce, even suicide.) Blowing the whistle is, indeed, a dark and lonely job. Yet, it seems to be the single most effective mechanism to discover fraud in its earlier stages (Reports To The Nations, Association of Certified Fraud Examiners, Austin, Texas, various years.) In fact, the sooner it’s discovered, the less the fraud costs the organization, by geometric factors.

Recent press reports indicate those few who “blew the whistle” on the Madoff matter may share in a $100 M. bounty. Such “reward” systems are not new: they date back to the False Claims Act of the Civil War Era. (Lincoln had enough assaults on the organization he was running, so he made changes with the law.) The IRS has had such a program for decades.

We usually try to address such issues by calls to the higher instincts of others – principle, responsibility, ethics, etc. But great sermons most often come from the safety of the pulpit. How many of us in our business or professional lives have sat silent when we believed we had evidence of misdeeds by those in power? (The author includes himself.)

What, then, are we to do?

Will the base element of profit encourage more effective disclosure? It is a complex and vexing question. The intelligence service (Stasi) of the East German Democratic Republic (a farcical use of words) is now believed to have used paid informants to such a degree that perhaps 20 percent of the population was informing on the other 80 percent (children included.)

Do we wish to become a nation of paid moral prostitutes? Virtue, in theory, is supposed to exist solely for its own sake (batteries not included.) Do we now buy “virtue”, allowing third parties to passively manage this precious resource?”.  Is this a reasonable, necessary, and effective, “deal with the devil?”  This was discussed in a club event for students at University of Chicago’s Booth School of Business. The topic was ethics.

In the end, what the witness fears is exclusion from the herd. The quiet book keeper fears where the organization might turn on her; to be shamed and shunned by people in power and those who don’t believe her. But the long term shame is being a silent witness to an injustice. Such as remaining silent with other injustices such as sexism, cruelty to children (as in public spankings), racism, or unfair advantages granted in the workplace or playground. Those informed by their values will regret their silence more than their complicity in the moment. It is the shame of Nazi Germany and Jim Crow Southern U.S.. The power of knowing it is wrong is strong and actually hard to ignore. In our book, A.B.C.s of Behavioral Forensics (Wiley, 2013), we highlight that thought with research in primates (see this link). So, for the witnesses, they are likely to experience truly ambivalent feelings: Strong desires to act in opposite ways: “ambi,” “valent.”

The material above is not an injunctive, a call for action, or a “sermon from the safety of the pulpit.”

It is a suggestion for thought and contemplation on an old and vexing problem.

We welcome your comments.

© Joseph W. Koletar. 2016

 

BEHAVIORAL FORENSICS GROUP

 

The Behavioral Forensics Group 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.  Acting in synergy to help organizations prevent, find, and/or reduce fraud, BFG is a premier, pioneering practice in this field.

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

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