Classification And Motives Of Fraudsters

Posted in Forensics and Investigations on January 17, 2024
Classification And Motives Of Fraudsters

Understanding the classification and motives of fraudsters is crucial in developing comprehensive anti-fraud measures and preventive strategies, as it provides insights into the diverse pressures that could lead an ordinary individual to commit fraudulent activities.

Ordinary people can do extraordinary things, including committing fraud. The question is what motivates an ordinary person to become a fraudster. Pressure is one of the three factors along with opportunity and rationalization. A person commits fraud when under difficult or threatening personal circumstances.

Classification And Motives Of Fraudsters

Classification And Motives Of Fraudsters

The pressure factor in fraud risk is dynamic. Individuals’ circumstances are as highly varied as their perceptions and reactions to them. The main thing is that fraud emerges when a person’s circumstances create perceived pressure that leads him or her to exploit an opportunity when it appears. In other words, every person in every organization has the potential to commit fraud under the right combination of circumstances.

In the first place, pressure is less likely to lead to fraud in organizations where fraud is taken seriously and fraud training is provided to employees. Broadly, organizations need to trust but verify. Frauds are committed at all levels of the organization, but at each level, certain red flags should raise awareness of the individual’s potential threats. 

Numerous other issues were also associated with fraud, including family problems, addiction, employment-related problems, and excessive job pressure. Fraud is a crime of ordinary people in extraordinary circumstances. Given that there is some variation in red flags by position, understanding these trends can help an organization tailor counseling and interview interventions. For example, people at every level were vulnerable to living beyond their means, but owners and executives were much more likely to have control issues.

Fraudsters Motives

Fraud criminals could be motivated by:

  • Greed​
  • Financial requirement
  • The pathological desire to commit crime
  • The desire to defy the system – the ‘catch me if you can’ mentality
  • Coercion (people may be forced to do something by their peers, family, or superiors)
  • Using funds to purchase illegal goods such as drugs or firearms
  • Ideology (doing something for the sake of the ‘greater good,’ as in the case of terrorist organizations)

What Are Fraud Factors?

A fraud factor facilitates the risk of fraud. Fraud could be committed if all or some of the following conditions exist.

  • Motive of the criminal (s)
  • Possibilities for deception
  • Capabilities of fraudsters
  • Justifications for committing fraud
Classification And Motives Of Fraudsters

Why People Commit Fraud?

CPAs must understand what drives people to commit fraud in order to better assess risk and assist employers or clients in implementing appropriate preventive and investigative measures. Most occupational fraud offenders, from the CEO to the rank-and-file employee, have one thing in common: they almost never took their jobs with the intention of committing fraud—they are almost always first-time offenders.

When confronted with this reality, one must ask the logical question: How do good people go bad? Greed is an obvious answer. However, many so-called greedy people do not lie, cheat, or steal to obtain what they desire. There are two distinct but related explanations for why employees commit fraud. The first is based on a Hollinger and Clark study of 12,000 workers conducted 20 years ago. It discovered that nearly 90% engaged in “workplace deviance,” which included goldbricking, workplace slowdowns, sick time abuse, and pilferage. Furthermore, an astonishing one-third of employees had stolen money or merchandise on the job.

Trust But Verify

In general, organizations must “trust but verify.” Frauds are committed at all levels of the organization, but there are certain red flags that should raise awareness of the individual’s potential threats at each level. Actual cases of organizational fraud were analyzed in the 2014 ACFE Report to the Nations to determine the personal circumstances of the fraudster and which red flags might have alerted the organization. The following were the most frequently mentioned factors:

  • They are living beyond their means. (This was by far the most common red flag, appearing in 44 percent of the cases.)
  • Financial difficulties account for 33% of all cases.
  • An unusually close relationship with a vendor or customer (22 percent of cases).
  • Control issues or a refusal to share responsibilities (21 percent of cases).

What Is The Fraud Triangle?

The fraud triangle is a framework commonly used in auditing to explain why someone decides to commit fraud. The fraud triangle delineates three elements that contribute to the risk of fraud: (1) opportunity, (2) incentive, and (3) rationalization.

The fraud triangle is a model commonly used in auditing to explain why an employee decides to commit workplace fraud. When reviewing the risk of fraud in an organization, auditors frequently refer to the fraud triangle.

Donald R. Cressey, a well-known criminologist, devised the fraud triangle. The premise is that in order to combat fraud, it is necessary not only to recognize that it occurs, but also to determine how and why it occurs.

Final Thoughts

The fraud triangle – comprising pressure, opportunity, and rationalization – provides a compelling framework to comprehend why ordinary individuals commit fraud under certain circumstances. These individuals, driven by diverse factors such as financial duress, greed, or the need to defy the system, often find themselves caught in circumstances that intensify the perception of pressure. Such pressure, coupled with an available opportunity and rationalized justification, can trigger fraudulent activities.

However, the susceptibility to commit fraud can be mitigated in environments that emphasize serious anti-fraud training and practices. By comprehending the red flags associated with fraud and tailoring preventive measures accordingly, organizations can potentially curtail the pervasiveness of such malfeasance. Acknowledging that every individual harbors the potential for fraud under the right circumstances underscores the need for constant vigilance, underlining the principle of “trust but verify.”