Psychology of the Fraudster

Hello Investigators! 

We’ve shared some of the common fraud types in the last four articles, let’s do something different this time! Today, we are going to break away from the various fraud types (don’t worry, more to come in the future!), and instead, look at the inner workings of the fraudster. 

Recall the fraud triangle. Not only does it provide an evaluation of why fraud occurs, it also incorporates the psychological aspect (or thoughts) of the fraudster in committing fraud. Understanding the psychology of the fraudster can help us to better understand and even deter future frauds from happening! 

General Types of Fraudsters

From a psychological perspective, there are generally two types of financial fraudsters being identified: (1) Calculating Criminals & (2) Situation-dependent Criminals. Let’s take a look at each of these general profiles and traits in greater details:

1. Calculating Criminals: 

• Predators. They are cunning, and they are willing to pull no stops until they achieve their objective. They are dangerous with the intent to harm

• Usually repeat offenders 

• Relatively well educated (higher-than-average intelligence)

• Generally inclined to take risks 

• Lacking of empathy, inner direction, self confidence & self-esteem 

• Define success by others’ standards 

The deadliest part about these criminals is that they are very difficult to detect when committing the fraud, as they have developed considerable skills and made a career in deceiving people. In fact, they can be so deceitful that even your best employee - the one you’ve always held in high regard and trust - could be one of them! One reason why they’re less detectable is due to their subtle thoughts and patience in finding the right opportunity. Like a lion waiting to prance on a lamb, these calculating criminals lay low and wait for the perfect moment to execute their plan. Once the opportunity arrives, they move so swiftly - you may not realise that your company has lost large amounts of assets. 

Little can be done to stop this type of fraudsters, as they are usually clever and tactical in bypassing company’s controls without being caught. However, chances of this occurrence could be minimized if the fraudster was never hired in the first place - a thorough background check on all candidates, no matter how trustworthy they seem to be, will always be a great idea.

2. Situation-Dependent Criminals:

• Typically older (30+ years), and 55% male, 45% female 

• Appearance of a stable family situation 

• Above average education (postgraduate)

• Less likely to have criminal record 

• Good psychological health 

• Position of trust 

• Detailed knowledge of accounting systems, with prior experience 

Fraudsters in this category do not stand out as well as the calculating criminals, and they commit frauds without the intention of harming others. They aren’t predators like the calculating criminals, as they are usually forced by circumstances into committing the fraud. Such circumstances may include the lack of money to treat a very sick family member - the fraudster steals to keep a loved one alive.

The importance of knowing what fraudsters are thinking

Undoubtedly, there are many potential fraudsters around, and it is almost impossible for us to identify every single one of them. Many have successfully committed fraud and were never caught. As investigators, it is quintessential that we understand the mindset of these fraudsters - good starting point since it’s remotely possible for us to look at every single transaction that went through their hands when we’re racing against time.. 

Appearance is no longer a good judge of whether someone is a fraudster, because their ways and methods are constantly changing/adapting to situations to prevent detection. The way we investigate must likewise evolve, and the better judge of someone’s character is by understanding of one’s psychology. 

Food for Thought

Do you think that there can be a hybrid between the 2 types of fraudster mentioned above? Let us know what you think! 

References

Golden, W. Thomas., Skalak, L. Steven., Clayton, M. Mona. A Guide To Forensic Accounting Investigation. John Wiley & Sons, Inc.