Profile Of A Fraudster

Profile of a fraudster. In an organization or a company, the fraudster may be any person from any hierarchical level. This is not necessary that fraud is committed by the middle management or lower management employee.

Profile Of A Fraudster

Profile Of A Fraudster

Fraudsters may be from the senior management of the company or the board of directors (BoD). Board of Directors is the tone from the top and the work as agents for the shareholders of the company. They report to the shareholders and their ultimate objective is to maximize the shareholder’s wealth. They work for salaries and therefore they are employees of the company or organizations. Exceptions are also there where members of the board may be non-executive directors who are not salaried individuals. These non-executive directors are part of the board to maintain independence. 

Senior management is the departmental heads who are hired by the board of directors to run the daily business affairs and operations of the company. Senior management develops policies and processes on the recommendations and directions of the board of directors. 

The Greatest Risk Lies At The Top

The weak governance structure or the board of directors is considered as one of the key reasons why frauds occur in organizations. The board of directors sets the tone from the top. They are responsible for hiring a suitable and experienced team of professionals as a management team to run the business affairs of the company on daily basis. 

There may be a possibility that the board of directors comprises a strong team of professionals, but they are corrupt. This happens when all the members of the board are from a similar family or have strong relationships with each other outside the business activities. They develop processes and policies in such a way that it becomes easier for them to induce the management or employees to work for them and provide them direct and indirect financial benefits. In such cases, the management also gets various indirect incentives from the board to perform the desired work as per the directions of the board. 

The corrupt board of a company requires all the employees including senior management to work according to the wish of the board. When an employee or member of the management denies or works in contradiction of the directions from the board, such employee is either fired or threatened to be fired from the company.  

To manage the risk of an inappropriate or corrupt board, the code of corporate governance framework is implemented in organizations, which contains various key elements to ensure the board of directors and overall governance structure of the company is robust and transparent. 

The Squeezed Middle And The Fraudster’s Department

Middle management in a company or an organization comprises the employees who supervise the lower management to perform daily routine work. Middle management employees are senior managers or managers who are mainly responsible for ensuring that policies and procedures developed by senior management and approved by the board of directors are complied with in letter and spirit by the lower management. 

Middle management’s appraisal is dependent on the performance of the proposed directions in the form of policies and procedures. There may be situations when the middle management is pressurized by the senior management to achieve the unachievable targets. Such undue demands cause the middle management to manipulate the resources available and convert them or use them to meet their targets. 

For example, in a large company or an organization where financial targets are huge, the middle management may start selling the fixed assets and use the cash proceeds or funds in achieving the targets through bribery.  

Further, the middle management may form a cartel or group where they start manipulating the financial records and transactions in such a way that an audit trail is also created, to show the senior management a broader picture, where everything is seen as moving on the target track. This may also be done by middle employees due to the fear of losing their jobs.

Final Thoughts

We’re all familiar with the seven key questions that help us understand a situation and its context: Who, What, Why, When, Where, How, and How Much? When these key questions are applied to fraud-related stories, it appears that many of the articles we read today focus on the what, why, when, where, how, and, most often, how much.

While these particulars are important to the plot, it is also worthwhile to delve deeper into the “who.” It is becoming increasingly important for employers to understand the warning signs and who commits fraud, as well as how it is perpetrated and what controls should be in place to mitigate the risk.

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