If asked to think about someone committing fraud, stereotypical thoughts and images would likely flood your mind without much effort. You may recall news stories of publicly traded companies landing themselves in hot water, or you may picture a high-level manager pressuring the accounting department to falsify financial statements. Since fraud is often referred to as a white-collar crime, you may imagine the fraudster as a clean cut and seemingly trustworthy individual. Regardless of the type of fraud people commit, researchers have found common psychosocial patterns that, in part, explain why people become fraudsters. This article will discuss the fraud triangle, which explains the conditions in which fraud occurs, as well as two different insights into the psychological motivations behind fraudulent activity.
The fraud triangle is used to represent the three factors that contribute to fraudulent activity. These factors are pressure to commit fraud, opportunity to do so, and rationalization of the act. “The Fraud Triangle: Three Conditions That Increase the Risk of Fraud,” posted on anderscpa.com, dives deeper into these factors. It is explained that pressure can include resentment against the victim company, financial problems, and greed, among others. The second factor demonstrates that the opportunity to commit fraud is, not surprisingly, greater when the act can go unnoticed. Companies can prevent opportunities for fraudulent activity by strengthening internal controls, however, it is noted that “companies with ample internal controls are still susceptible to fraud if controls can be overridden by management.” Finally, fraud is more likely to occur if the fraudster can morally rationalize his/her actions. The article explains that some fraudsters will bend their view on moral issues so that they no longer see their activity as wrong. Fraudsters may also reassure themselves that what they are doing is okay because they will repay the company later. It is concluded that awareness of these three factors can help keep fraud from occurring within an organization.
Beyond the concept of the fraud triangle, researchers have studied what makes a fraudster commit his/her crime. Some researchers examine specific characteristics that are potential risk factors for committing fraud. These researchers look at the idea from the standpoint that fraudsters are different from the rest of us, much how other criminal groups are labeled with identifying traits. On the other hand, certain studies have emphasized that even “good people” sometimes engage in fraudulent activities. These researchers note that many of these people do so without consciously accepting the fact that what they are doing is wrong. The following ideas will be further explored below.
“The Psychology of Fraud” by Kristine Blenkhorn Rodriguez, posted on the Illinois CPA Society’s website, profiles the typical fraudster. It is reported that white-collar crimes, such as fraud, are most likely to be committed by men between the ages of 31 and 45. These fraudsters typically have over five years of experience at the company. In fact, the article states that “36 percent of frauds are committed by a member of management and 16 percent by an owner/executive.”
Agents from the FBI’s Behavioral Analysis Unit (BAU) began profiling fraudsters in 2009. Although their analyses have been useful, there are still some pitfalls to profiling these criminals. The article cites Frank S. Perri, who has over 20 years of experience as a criminal trial attorney. He explains that many of the defining traits of a fraud offender are the same traits that organizations want to see in their employees, such as self-confidence and determination. He also discusses how projection bias interferes with understanding the profile of a fraud offender. This idea is summed up by him stating, “‘If someone doesn’t have the conventional look of a street-level criminal, then one is not a criminal. Social psychological research has shown that people attribute qualities of integrity to those that display similar traits to their own, such as their level of education and their religious affiliation.’” In other words, people do not expect those who are like them to engage in criminal activity.
With the above explained, Perri identifies key characteristics that are prevalent among fraud offenders. Many fraudsters believe that they are entitled to what they want, even if it has a poor impact on others. They are also often manipulative and believe that the ends justify the means. Fraudsters often are power hungry and have high self-confidence, but they lack empathy and often do not listen to others. To close, Perri states that “‘These fraudsters may have illusions of infallibility, of not getting caught—which is exactly why they usually are caught.’”
Perhaps, the most interesting and insightful lens, through which to study the psychology of fraudsters, is that which views them as everyday “good people” prior to committing their crime. Ann Tenbrunsel, a researcher of unethical behavior at Notre Dame, studies the behavior of those who engage in fraudulent activity from this point of view. Her research and findings are discussed in “Psychology of Fraud: Why good People Do Bad Things,” published on npr.org. In one of Tenbrunsel’s studies, one group was asked to think of a business decision while another group was asked to think about an ethical decision. The groups were then given an unrelated task in which they were given the opportunity to cheat. She found that those primed with the idea to make a business decision were much more likely to cheat than those primed to think about ethics. Tenbrunsel states, “‘We assume that [fraudsters] can see the ethics and are consciously choosing not to behave ethically,’” but her study may show otherwise. She explains that people can be blind to the fact that they are making a decision that involves ethical considerations when they are looking at the scenario from the frame of achieving business goals.
The same article shares that many people commit fraud out of empathy for someone else. This counterintuitive fact may seem unbelievable, but research by Lamar Pierce from Washington University in St. Louis and Francesca Gino from Harvard business School backs this claim. It is known that emissions testers lie in many cases and allow some highly polluting cars to pass their e-check. Pierce and Gino collected hundreds of thousands of e-check records and identified a pattern. The article sums up their findings by stating, “If you pull up in a fancy car – say, a BMW or Ferrari – and your car is polluting the air, you are likely to fail. But pull up in a Honda Civic, and you have a much better chance of passing.” The researchers concluded that this pattern demonstrated the principle that people want to help others when they feel empathy for them. Emissions testers most likely allow polluting inexpensive cars to pass because they feel for the drivers who, like them, do not make a great salary. In other words, some people engage in fraudulent activity out of kindness instead of greed.
In summary, there are many psychosocial factors that contribute to one’s decision to commit fraud. There are common traits that identify some high-level fraudsters, but not all people who commit fraud are manipulative and greedy. Research has demonstrated that some people turn a blind eye to the fact that what they are doing is unethical. In fact, some fraudsters commit their crime out of empathy for others. This, of course, does not make their actions ethical. Finally, it is important to remember that fraud occurs when the three factors of the fraud triangle are present: opportunity, pressure, and rationalization. Having a familiarity with the risk factors and motivations for fraud can help you better detect potential threats in your workplace.